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329



Section V

Local and regional development policy



28

Endogenous approaches to local and regional
development policy

Franz Tödtling

Definition and genesis of the entrepreneurship. Endogenous approaches
concept are more broadly defined in comparison,
referring to those that focus more on inter-
Indigenous and endogenous approaches to nal factors and processes of local and regional
local and regional development policy development instead of external ones (Stöhr
were introduced in the late 1970s and have 1990). Included here are also factors which
become prominent since then both in are intentionally created or upgraded by
advanced economies and in developing policy makers and related institutions, such as
countries (see e.g. Stöhr 1990, Garofoli 1992, infrastructure investments, schools, training
OECD 2003, Pike et al. 2006, Vázquez- organisations, universities and research
Barquero 2006). They are based on the idea organisations. Created endogenous factors,
that local and regional development should thus, refer to a highly educated workforce,
be driven in a bottom-up manner by indig- and to knowledge and technologies devel-
enous and endogenous forces and factors. oped in the region, which might lead to new
There is a certain difference, however no products, processes or other new solutions.
clear borderline, between indigenous and Endogenous forces include also social and
endogenous development concepts. Pike et al. political factors such as the engagement of
(2006: 155) refer to indigenous development social agents and civil society which trigger
as being based upon naturally occurring and/ processes of self-help, local initiatives, and
or socially produced sources of economic social movements aiming at the improve-
potential growing from within localities and ment of living conditions in a particular
regions. They regard indigenous approaches region. Due to the strong role of local forces
as a means of nurturing such ‘home-grown’ and factors, such a development strategy has
assets and resources that may be more locally often also been called the “bottom-up
and regionally embedded, more committed approach”.This refers to the idea that regional
and more capable of making enduring con- development is initiated and carried by local
tributions to local and regional development. and regional actors and agents instead of
Such resources and factors include land, central government or external agencies, and
natural resources, the resident local labour that it is oriented to the needs and objectives
force, historically rooted skills, and local of the regional population.

333

FRANZ TÖDTLING

In endogenous development various spa- not been very effective for improving the
tial levels and respective institutions play a economic situation of less developed and
role. The focus is on the local and regional peripheral regions and countries (Stöhr and
levels where specific processes, institutions Tödtling 1977, Stöhr and Taylor 1981). In
and agents are the key driving forces. At the particular, the gap to the economically lead-
local level we often find entrepreneurial ing regions, i.e. the core areas, could often
processes, economic and social initiatives and not be reduced. A number of critical points
movements, whereas at the regional level had been raised regarding the external
activities of regional government and associ- regional development paradigm. The first
ations, official programmes for (endogenous) was that due to the strong orientation on
economic development, cluster initiatives external demand and on specific compara-
and innovation support including university– tive advantages of respective regions only a
industry relationships may be identified. small share of regional factors had been
Endogenous local and regional development mobilised and used in previous development
also depends, however, to a considerable policies. In particular specific natural
extent also on national political and institu- resources, tourist sites and low-cost labour
tional structures (e.g. policy competences of had been exploited in less developed regions
regions, national economic policies), macro- and countries, whereas other factors and
regional conditions and institutions (e.g. EU potentials such as qualified labour, specific
regional policies and structural funds), and skills and competences had been rather
also on global regimes and institutions (e.g. neglected.Then, a key strategy had been the
trade regimes and related institutions). attraction of external firms and of branch
plants. This, however, had benefited often
Endogenous approaches to local and re- central locations or growth centres in those
gional development have evolved as a counter- regions, and there were few economic spill-
thesis to previous regional development overs to less developed areas. If these existed,
approaches for less developed areas which they took the form mainly of labour com-
have strongly emphasised external factors muting to the centres and the dispersal of
such as interregional trade (exports, imports) branch plants to the hinterland, less through
or the mobility of capital (firms), labour and input–output linkages and technology diffu-
technology between regions and countries. sion to peripheral regions. Furthermore, the
More specifically,endogenous regional devel- branch plants have lacked usually higher level
opment strategies were formulated as a functions such as office and managerial
response to often unsuccessful policies of the activities, R&D and innovation offering only
1960s and 1970s which were strongly based low-quality jobs with few prospects of upward
on factors such as external demand (export mobility for workers and employees. Then,
base theory, trade theory), the attraction of the potential of mobile plants to locate in less
leading international firms and technology developed regions had been reduced due to
to growth centres (growth pole theory), and an increasing globalisation of the economy.
the mobility of capital and labour between New locations for multinational companies
economically strong and weak regions (neo- had been coming up in emerging economies
classical growth theory).This previous exter- such as South East Asia and Latin America as
nal development paradigm has also been well as in Eastern Europe, offering abundant
called “top-down regional development cheap labour as well as prospects for a high
approach” (Stöhr and Taylor 1981) because it market growth.As a consequence, firms have
was often designed and implemented by been setting up new subsidiaries or branch
central government or external agencies. A plants in those new locations, and less so
number of critical reviews and studies have in backward regions of advanced countries.
pointed out that those external strategies had

334

ENDOGENOUS APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY

A related problem was that the focus on exist in particular in natural resources,
branch plants in such external strategies did landscapes and tourist sites, qualified
not raise the entrepreneurial potential and labour and specific skills or compe-
the innovation capability of less developed tences of the respective regions.Porter
regions to a notable extent.As a consequence, (1990, 1998) more recently has
there were few start-ups and a lack of inno- pointed out in this context that such
vations, in particular as regards new products. factors and potentials are not just
Last but not least, the external strategies often “given” but can be created or
have deteriorated the environmental situa- upgraded through a long-term goal-
tion in the respective regions because eco- oriented public policy as well as
logical and sustainability aspects had not been through corporate initiatives and
taken into account. actions.
iii) It was also argued that other sectors
As a reaction to these problems, scholars than manufacturing, such as agricul-
and policy observers since the 1980s were ture, craft-based industries, tourism
looking for new approaches for local and and other services, should be included
regional development. Policies in many in development strategies.The inten-
advanced and developing countries were tion was to formulate integrated con-
shifting subsequently more towards endog- cepts trying to inter relate different
enous concepts. These were not based on a but complementary sectors. This has
consistent new theory, but were defined included, the strengthening of input-
rather as a counter-thesis to the external output linkages and other relation-
approach.The following elements and char- ships between those various sectors.
acteristics have been pointed out for such a Examples are complementarities and
new orientation (Stöhr and Tödtling 1977, interrelations between agriculture,
Stöhr 1990, Garofoli 1992,Vazquez-Barquero tourism and craft-based activities in
2006, Pike et al. 2006): rural and peripheral regions.
iv) Then, more attention has been given
i) It was argued that regional economic to the development problems and
development should take a long-term growth potentials of incumbent small
perspective and harmonise economic, firms as well as a stronger focus on
social and environmental goals (Stöhr entrepreneurship and new firm for-
and Tödtling 1977, Morgan 2004). mation. This was due to the fact that
Economic growth, thus, should not less developed regions often had high
only enhance regional production shares of small and medium-sized
and average per capita income, but also firms in traditional sectors which did
improve the broader socio-economic not benefit from the top-down strate-
situation, including the living condi- gies.The formation of new firms, on
tions for the poor. Furthermore, it the other hand, was seen as key for
should not deteriorate the environ- generating growth and renewal in
mental and ecological situation of the those regions.
region, an idea which more recently v) Innovation has received a more prom-
has been introduced as “sustainable inent role than in the top-down
regional development”. approaches. Innovation was broadly
defined, including technological, busi-
ii) Strategies were based to a higher ness and social innovations.The inten-
degree on the mobilisation of endog- tion was to escape cost competition
enous regional factors and potentials, from low-wage countries through a
instead of external and mobile ones.
Endogenous potentials were seen to 335

FRANZ TÖDTLING

high quality of products and proc- regional actors, influenced and shaped by
esses. Innovation, however, was also local and regional institutions and policy
aimed at the solution of broader social (Cooke and Morgan 1998). Space in this
and other problems and not confined context is conceived as “territory”, repre-
to technology aspects of companies senting the clustering of social and economic
only. relations, and having specific cultural and
vi) Regional specificities in culture, local other features (Garofoli 1992). These rela-
demand and economic structure were tions and institutions lead to specific patterns
regarded as relevant contexts and fac- of local and regional development or to dif-
tors to be taken into account. Such ferent “worlds of production” (Storper 1997)
peculiar local and regional character- instead of a uniform development model.
istics cannot easily be copied by Endogenous approaches to local and regional
competitors, and are therefore seen development, thus, take account of and build
as a source of unique competitive upon economic, social and institutional
advantages for regional firms. In this particularities in geographical space.
context a certain level of “regional
identity”was seen as a favouring factor Key mechanisms for generating such a
for regional development. In business bottom-up process are development initia-
this took the form of branding of tives started and implemented by local and
regional products, and of using new regional actors, using mainly regional
ways of marketing such as direct sell- resources and aiming at regional benefits
ing (e.g. of agricultural or handicraft (OECD 2003).They respond to the needs of
products). the regional population and are created and
vii) Beyond narrow economic factors, controlled by individuals and groups of the
social and political forces were pointed respective community. Central objectives are
out to be relevant for local and often the creation of viable and worthwhile
regional development. This includes employment or the improvement of regional
activities of social agents and the living conditions. An underlying hypothesis
engagement of civil society triggering of this approach is that the basic prerequisites
and supporting processes of self-help, of development – initiatives and entrepre-
local initiatives, and social movements neurship – are available or latent in most
aiming at the improvement of living regions. Actions initiated at the local and
conditions in particular regions. regional levels are seen to have several advan-
Decentralised decision making and tages compared to central or top-down
policy competences at the local and approaches such as a direct problem percep-
regional levels were seen as favourable tion, a high intensity of interaction, regional
for economic development since it synergies, regional strategy formulation, and
was assumed that there was a better collective learning within regional networks.
understanding of problems, barriers
and potentials for regional develop- It should become clear, however, that
ment at those lower levels and since it regional development is never the result of
allowed a fine tuning of development endogenous forces only. It is always the out-
strategies to the needs and goals of come of both endogenous and exogenous
the regional population. factors and processes, and their interaction.
This leads to a plurality of development paths
Endogenous approaches to local and regional and of development models, partly also due
development are based on bottom-up pro- to the effects of different economic policies.
cesses, initiated and carried out by local and Furthermore, individual regions have a dif-
ferent capacity for endogenous development
336 and therefore a differentiated need for central

ENDOGENOUS APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY

or external development inputs and efforts. It process of globalisation, however, local and
is a kind of paradox that peripheral and dis- regional relationships have been substituted
advantaged regions, which were often the by global market links and by production
target of endogenous regional development relocations to low-wage countries.
strategies, have a rather low potential for such
strategies and require more external resources Industrial districts were often regarded as a
and support for triggering a dynamic regional role model for endogenous local and regional
development (Hadjimichalis and Papamichos development, since they combined several
1991). relevant elements: local entrepreneurship,
indigenous small firms in traditional sectors,
Specific routes of endogenous competing successfully on the world market
local and regional development through a high quality of products, incre-
mental product innovation and continuous
Endogenous approaches to local and regional upgrading of technology, cooperation with
development were inspired by and further customers and suppliers (vertical) and com-
developed since the 1980s in related con- petitors (horizontal), as well as collective
cepts such as industrial districts, local entre- action and policy support at the local level.
preneurship, regional learning and regional As a consequence,they were copied by policy-
innovation systems. First, studies on makers in many regions across the world,
industrial districts such as “Third Italy” (e.g. even if the respective qualities such as a cer-
Emilia Romana, Toscana, Veneto), Baden- tain entrepreneurial potential, social capital
Württemberg and other regions of Europe and trust as preconditions for cooperation,
(Garofoli 1991, Cooke and Morgan 1998, and supporting institutions did not exist in
Asheim 2000, Amin 2003) have advanced the many localities and regions (Storper et al.
concept of endogenous local and regional 1998). Furthermore, industrial districts have
development.These districts were often spe- been strongly challenged by the emerging
cialised in traditional sectors such as textiles economies in Asia, Latin America and in
and clothing, leather and shoes, furniture, and Eastern Europe, which have been catching
machinery, and they were characterised by up rapidly in some of these sectors. Industrial
competitive small firms, entrepreneurship districts and their firms have reacted in vari-
and flexible specialisation. Although these ous ways to this challenge: some have been
firms have often been competing fiercely, relocating production activities abroad to
they have also maintained cooperative links low-cost countries, whereas others have
and subcontracting relations at the local and undergone a process of mergers and take-
regional levels. It has been demonstrated that overs by incoming foreign firms hollowing
firms in such districts were strongly embed- out the original model.Another strategy was
ded into the respective local and regional the upgrading towards high-end product
economies through input–output links, segments or towards activities such as design,
knowledge exchange and collective learning, R&D and marketing. The literature on
and various kinds of social relationships such industrial districts, thus, has demonstrated
as family ties, relations to local unions and some key problems and issues of endogenous
other interest groups. There were also ele- regional development. First, only a few
ments of collective action, institutions and of regions have really good preconditions for an
policy support, such as the provision of serv- endogenous development route and strategy.
ices in the fields of R&D, product develop- Second, even regions showing good condi-
ment, technology upgrading, sales and tions are continuously challenged by globali-
distribution,and marketing.Due to an ongoing sation and changing external conditions such
as new competitors, and the change of
markets and technologies.Third, due to these

337

FRANZ TÖDTLING

challenges, external factors and strategies of respective policies local spin-offs from uni-
development are increasingly used and com- versities and research organisations, venture
bined with endogenous elements. In this capital and the mobility of highly qualified
process, endogenous and external factors people within the local labour market are
become more and more interrelated and put into the centre. Policy experiences
inserted into complex and multi-scalar webs regarding local entrepreneurship are summa-
of social and economic interdependencies rised in OECD (2003) and OECD (2007). It
(Amin 2004, McLeod and Jones 2007, Pike has been pointed out that enterprise promo-
2007). tion as a local development strategy can be a
critical component of a development strat-
Endogenous approaches to local and egy, but it does not constitute a development
regional development policy have since the panacea. It favours those individuals who
1990s also been stimulated by research and possess human capital, financial and other
policies of local entrepreneurship (Malecki assets, and it cannot address all problems of
1994, Reynolds et al. 1994, Acs and Storey disadvantaged regions. It also needs an
2004, De Groot et al. 2004). Entrepreneurship extended time horizon of such policies to be
is a key element in endogenous policy successful.
approaches because new firms usually origi-
nate from the region, they use local talent Regional learning has been another route
and labour, and have more local and regional of endogenous local and regional develop-
input–output and knowledge links than ment (Morgan 1997, Lundvall and Borràs
external firms. Furthermore, they have their 1998, Rutten and Boekema 2007).The cen-
management and other key functions within tral argument here is that globalisation
the region. They, thus, are often strongly increasingly challenges local and regional
embedded in local social and economic net- economies through rapid shifts of markets,
works.There have been a number of studies production and technologies requiring fast
on local conditions and regional differences adjustments. Furthermore, in a world of
of entrepreneurship and new firm formation, modern information and communication
effects on local and regional development in technologies and global flows of codified
terms of employment and economic growth, knowledge,the sources of competitive advan-
barriers for the setting up of new firms, and tages become increasingly rooted in unique
related policies and their results.This research local competences, skills and tacit knowledge
also shows the limits of the entrepreneurship (Malmberg and Maskell 1999). Informal
approach to local and regional development. relationships and “untraded interdependen-
In particular less favoured regions have usu- cies” (Storper 1995) are key for the exchange
ally a limited entrepreneurial potential and of such local competences and skills. There
there are many other barriers (Fritsch 1992, are some preconditions for local learning,
Reynolds et al. 1994, Armington and Acs however, such as a common understanding
2002, Tödtling and Wanzenböck 2003). of problems and issues, or the existence of
Furthermore, effects on local and regional trust for engaging in networks and know-
development in terms of employment gener- ledge exchange. As in the case of entrepre-
ation and economic growth remain often neurship such conditions cannot be found
small, due to the small size and slow growth of in every region (see Storper et al. (1998)
many such companies. More recently local for learning problems in the case of “late
entrepreneurship has received strong attention comers in the global economy”). Regional
in approaches to the regional knowledge learning is strongly related to endogenous
economy (Keeble et al. 2000, Cooke regional development since it builds on local
et al. 2007, Julien 2007). In these studies and competencies and skills, and the sharing of

338

ENDOGENOUS APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY

knowledge and of best practices. Regional innovation policies cannot be of a “one-size-
learning approaches aim at a collective fits-all” type for every region (Tödtling and
enhancement of know-how, and an upgrad- Trippl 2005). In particular core regions and
ing of practices and technologies as has been large cities often have better conditions for
demonstrated for selected industrial districts, innovation, whereas less favoured regions
clusters and in innovative milieux. Key frequently have severe constraints and
mechanisms of regional learning are the regional innovation system deficits.Peripheral
mobility of qualified labour, knowledge regions are often lacking industry clusters
exchange through cooperation and informal and organisations of knowledge generation
networks, and the setting up of spin-off com- and education (universities and research
panies. A certain limitation of local learning organisations).Their economies are based on
as a regional development strategy is that it SMEs facing many innovation barriers
often leads to incremental innovation only, (Asheim et al. 2003). Old industrial areas on
less often to more radical innovations (Cooke the other hand have industrial clusters as well
et al. 2007).This tends to keep firms on their as universities, schools and R&D organisa-
existing technology paths and runs the risk tions. However, these organisations and insti-
of leading to “lock-in” (Grabher 1993, tutions are oriented on old clusters and
Hassink and Shin 2005). technologies, and often re-enforce problems
of lock-in. This implies that “endogenous”
Finally, ideas of endogenous local and innovation strategies take different routes in
regional development show up in innovation distinctive regions since they have to be tai-
approaches such as regional innovation sys- lored to the specific innovation problems and
tems and policies (Cooke et al. 2000, barriers of such regions.
Doloreux 2003, Tödtling and Trippl 2005,
Nauwelaers and Wintjes 2008). Here, inno- Endogenous local and regional develop-
vations such as new products, processes or ment concepts have been applied in a number
organisational practices are regarded as key of policy programmes and development ini-
drivers of local and regional development. tiatives, supported by international organisa-
These are often based on local knowledge or tions such as OECD, ILO and the European
competencies. Key endogenous actors in Commission. Examples are the LEADER
regional innovation systems are R&D per- and RIS/RITTS programmes for regions of
forming and innovating firms, universities, the EU or the LEED programme by the
research organisations, and education institu- OECD. Key ideas of this approach have also
tions. Also, organisations for knowledge been integrated into the recent report regard-
transfer, innovation finance and support ing a reform agenda of the EU cohesion
organisations have an important role to play. policy (Barca 2009). The concept has been
Like in industrial districts and in regional promoted also by ECLA (Economic
learning an intensive interaction between Commission for Latin America) in South
firms (knowledge exploitation) and research America and has been applied in countries
organisations (knowledge generation) is seen such as Guatemala, Costa Rica,Venezuela and
to be required for a good performance. Brazil. In Asia it was taken up by countries
However, it should be pointed out that such as India and Pakistan. In most of these
regional innovation systems are not only more recent approaches there is more empha-
relying on endogenous actors and institu- sis on entrepreneurship, innovation and
tions.They are highly open and often multi- regional learning compared to earlier versions
level systems,strongly related to the respective of endogenous development. Furthermore
national innovation system as well as to these more recent policy models take
international firms and institutions.Regional more account of global–local and multi-scalar

339

FRANZ TÖDTLING

interactions and linkages, and depart from and factors, including social and political
ideas of self-reliance or regional autonomy. processes, and it has emphasised the key role
of local initiatives, entrepreneurship and
Conclusions innovation. It has prepared, thus, the ground
for more recent concepts such as the foster-
Endogenous approaches to local and regional ing of entrepreneurship, regional learning
development have come up since the late and innovation. However, we should not
1970s as a counter-thesis to the external overlook the weaknesses and limits of the
regional development paradigm. Core ideas endogenous development concept. It has
and elements are the understanding of devel- been formulated too much as a “counter-
opment as a bottom-up process, a key role of concept”against the then prevailing top-down
local and regional actors and initiatives, model and was lacking coherence as a theory
including social agents and civil society, a of its own. It has focused initially too strongly
high importance of decision-making func- on endogenous factors and actors, neglecting
tions, as well as of policy competences and the fact that successful regional development
institutions at local and regional levels. It is is usually the result of both endogenous forces
conceived as an integrated approach taking and external factors such as mobile capital,
account of sector- and other socio-economic technologies, talent and knowledge. Basically,
interdependencies, and it has an emphasis on the concept of endogenous regional develop-
ecological aspects and on a sustainable use of ment has more or less tried to promote“islands
natural and other resources. of development” in a world of increasing
social and economic interdependencies at all
Endogenous local and regional development spatial levels. As a consequence it stands in
policy was inspired by related concepts such as stark contrast with and is challenged by recent,
industrial districts, regional learning and inno- more unbound and relational approaches of
vation systems. These have partly distinct fea- economic geography.
tures and elements as was pointed out.However,
they also share common elements characteris- Due to ongoing processes of European
ing them as endogenous development. Such integration and globalisation, regions and
common elements are the search for local and countries are nowadays highly open systems
regional specificities, uniqueness and identity with ever-increasing external flows of goods,
also as a source of competitive advantages for services, finance and capital, people and know-
firms, a key role of local and regional institu- ledge. Furthermore, institutions and policies
tions,social capital and networks,a high impor- for economic development and innovation are
tance of entrepreneurship and innovation, and increasingly characterised by multi-level gov-
the view that learning and innovation are, ernance, where regional actors and institutions
despite globalisation and modern information are inserted in and strongly related to national
and communication technologies, to a high and international (e.g. EU) levels and institu-
degree local processes, based on localised tacit tions.This was shown, for example, for Europe
knowledge and its exchange. in recent studies on the role of Structural
Funds and on regional innovation systems.
Endogenous local and regional develop- Under such conditions endogenous regional
ment, thus, can be regarded as a stimulating development had to take new routes such as
and influential concept evolving since the regional entrepreneurship and learning, and
1980s. It has responded to the problems and regional innovation policy. We have to be
limits of a one-sided top-down or external aware, however, that these newer variants are
development approach. It has brought atten- not applicable to all kinds of situations. Like
tion to indigenous and endogenous forces the original model of endogenous regional

340

ENDOGENOUS APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY

development they tend to work better in De Groot, H., Nijkamp, P. and Stough, R. (2004)
already successful locations and regions, thus Entrepreneurship and Regional Economic
further increasing the gap to those at the Development: A Spatial Perspective, Cheltenham:
bottom of the league. Edward Elgar.

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Firm Formation: Evidence from West
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Berman, E., Maier, G. and Tödtling, F. (eds)
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Barca, F. (2009) An Agenda for a Reformed Cohesion
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Cooke, P. and Morgan, K. (1998) The Associational
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Competitiveness of Firms and Regions:
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Morgan, K. (1997) ‘The Learning Region: Tödtling, F. and Wanzenböck, H. (2003) ‘Regional
Institutions, Innovation and Regional Differences in Structural Characteristics of
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Innovation Policy in Europe, Cheltenham:
Edward Elgar. Vazquez-Barquero, A. (2006) Endogenous
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OECD (2003) Entrepreneurship and Local Economic and Cities, London: Routledge.
Development – Programme and Policy Recommen-
dations, Paris: OECD Publications. Further reading

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of SME and Entrepreneurship Policies and of endogenous development
Programmes, Paris: OECD Publications.
Stöhr,W.B. (ed.) (1990) Global Challenge and Local
Pike, A. (2007) ‘Editorial: Whither Regional Response – Initiatives for Economic Regeneration in
Studies?’, Regional Studies, 41(9), 1143–1148. Contemporary Europe, London: Mansell.

Pike, A, Rodriguez-Pose, A. and Tomaney, J. Vazquez-Barquero, A. (2006) Endogenous
(2006) Local and Regional Development, London Development – Networking,Innovation,Institutions
and New York, Routledge. and Cities, London: Routledge.

Pike, A., Rodriguez-Pose, A. and Tomaney, J. On industrial districts as a model
(2007) ‘What Kind of Local and Regional of local and regional development
Development and forWhom?’, Regional Studies
41(9), 1253–1269. Amin,A. (2003) ‘Industrial Districts’, in Sheppard,
E. and Barnes, T.J. (eds) A Companion to Eco-
Porter, M. (1990) The Competitive Advantage of nomic Geography, 149–167, Oxford: Blackwell.
Nations, New York: Free Press.
Asheim, B. T. (2000) ‘Industrial Districts: The
Porter, M. (1998) On Competition, Boston: Harvard Contribution of Marshall and Beyond’, in
Business School Press. Clark, G.L., Feldman, M.P. and Gertler, M.
(eds) The Oxford Handbook of Economic
Reynolds, P.D., Storey, D.J. and Westhead, P. Geography, 413–431, Oxford: Oxford
(1994) ‘Cross-national Comparison for the University Press.
Variation in New Firm Formation Rates’,
Regional Studies 28, 443–456. On the role of formal and informal
institutions for local and regional
Rutten, R. and Boekema, F. (eds) (2007) The development
Learning Region: Foundations, State of the Art,
Future, Cheltenmham: Edward Elgar. Cooke, P. and Morgan, K. (1998) The Associational
Economy:Firms,Regions,and Innovation,Oxford/
Stöhr, W.B. (ed.) (1990) Global Challenge and New York: Oxford University Press.
Local Response – Initiatives for Economic
Regeneration in Contemporary Europe, London: For a review on entrepreneurship
Mansell. and regional development

Stöhr,W.B. and Tödtling, F. (1977) ‘Spatial Equity: Acs, Z. and Storey, D. (2004) ‘Introduction:
Some Antitheses to Current Regional Entrepreneurship and Economic Develop-
Development Doctrine’, Papers of the Regional ment’, Regional Studies 38(8), 871–877.
Science Association, 38, 33–54.

Stöhr, W. and Taylor, D.R.F. (eds) (1981)
Development from Above or Below? The Dialectics
of Regional Planning in Developing Countries,
Chichester:Wiley.

Storper, M. (1995) ‘The Resurgence of Regional
Economies, Ten Years Later: The Region as a
Nexus of Untraded Interdependencies’, Euro-
pean Urban and Regional Studies 2, 191–221.

Storper, M. (1997) The Regional World: Territorial
Development in a Global Economy, New York:
Guilford Press.

Storper, M., Thomadakis, S.B. and Tsipouri, L.J.
(eds) (1998) Latecomers in the Global Economy,
London: Routledge.

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On the role and preconditions of Tödtling, F. and Trippl, M. (2005) ‘One Size Fits
learning in local and regional All? Towards a Differentiated Regional
economies Innovation Policy Approach’, Research Policy
34, 1023–1209.
Rutten, R. and Boekema, F. (eds) (2007) The
Learning Region: Foundations, State of the Art,
Future, Cheltenmham: Edward Elgar.

On innovation policies and regional
development

Nauwelaers, C. and Wintjes, R. (eds) (2008)
Innovation Policy in Europe: Cheltenham:
Edward Elgar.

343

29

Territorial competitiveness and local and
regional economic development
A classic tale of ‘theory led by policy’

Gillian Bristow

Introduction the‘new conventional wisdom’is that nations,
regions and cities have to be more competi-
Quite simply, competitiveness is everywhere. tive to survive in the new marketplace being
Regions and cities the world over are pre- forged by globalisation and the rise of new
occupied with the notion that they are rivals information technologies (Buck et al., 2005).
facing intense global competition for eco- Yet the notion that competitiveness is a con-
nomic prowess. Local and regional economic cept that can be applied to places has been
development strategies are littered with the denounced as at best ‘misleading’ (Kitson et al.,
language of winning, of gaining competitive 2004) and at worst a ‘dangerous obsession’
advantage over other places, of moving up the (Krugman, 1994), the use of which not only
competitiveness league table, and of compet- betrays a serious failure to understand how
ing for key resources in the form of global local and regional economies actually work,
capital investment, government funding, but results in, among other things, invidious
events, visitors, or skilled, ‘creative’ residents. and damaging place-based competition.
They are not unique in this.The competitive-
ness imperative facing cities and regions mir- The purpose of this chapter is to provide a
rors the dominant thinking around national detailed review of the current thinking
and supranational economic performance. around the notion of territorial or place
Competitiveness is, for example, deeply competitiveness. While competitiveness is
embedded in the European Union (EU)’s increasingly applied to all places, the chapter
Lisbon Agenda which explicitly states that its focuses specifically on the use and relevance
aim is ‘to make the EU the most competitive of the term in the context of local and
and dynamic knowledge-based economy in regional economic development. It begins
the world’ (Commission of the European by trying to establish what place competi-
Communities, 2000: 2). Competitiveness- tiveness actually means. This reveals it is an
thinking is also pervasive in the global South inherently confused concept with weak the-
which has witnessed the rapid absorption of oretical underpinnings. As such, it is argued
the North’s mantras on competitiveness and that the rise to prominence of place com-
the policy approaches deemed to enhance it petitiveness is a classic example of ‘theory led
(Wignaraja, 2003; UNCTAD, 2004). Indeed, by policy’ (Lovering, 1999) whereby com-
mentators are now seeking to justify use of
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LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

the term long after it has become firmly in the wake of the post-war settlement and
embedded in policy discourse. This, in turn, the rise of the neoliberal political economy,
is prompting increasing criticism of the sorts the structural properties of the global econ-
of policy agendas being prioritised under the omy have drastically changed (Krugman,
rubric of competitiveness. The chapter then 1996).
moves on to examine the growing interest in
political economy approaches to understand- Yet this assumes that places are actors with
ing the dominance of competitiveness think- discrete control over their jurisdictions and
ing.These approaches are valuable as a means that they are actively in competition with
of generating insights into why competitive- other, similarly constituted places in clearly
ness has such appeal in local and regional defined and spatially connected factor
development policy, and who is shaping and markets – assumptions which are highly
spreading its dominant ideas. It concludes by questionable. Whereas firms face a distinct
establishing what and where capacities might bottom line and may go out of business if
exist for the dominance of place competi- they are uncompetitive, places do not.While
tiveness to be contradicted or challenged. firms enter and exit markets, places do not.
Furthermore, unlike firms, places may have
Place competitiveness: a chaotic more than one objective and are not driven
concept simply by the pursuit of economic success or
profit (Turok, 2004).As such, the competitive
In spite of the growing volume of literature success of one place is not necessarily at the
on the subject which typically cuts across a expense of another. Indeed, regions and cities
range of disciplines, there is precious little are often locked in complex interdependen-
agreement about what place competitiveness cies and networks of relations, some of which
actually means. Broadly speaking, there are are co-operative rather than necessarily con-
two ways in which it can be understood – flictual or competitive. They create markets
first, in the relatively narrow, economistic for one another, people commute between
sense of competing over market share and cities and places, and supply chains typically
resources, and second, in much broader cross city boundaries. As Unwin (2006: 5)
developmental terms relating to the determi- observes, ‘nobody would claim that if
nants and dynamics of a place’s long-run Manchester’s economy performs poorly, this
prosperity. One of the major difficulties in is good news for Liverpool.The demand for
understanding place competitiveness is that Liverpool’s goods and services will shrink
these different conceptions typically tend to and Manchester will no longer be able to
get muddled together and confused. supply it with goods and services as cheaply
or of the same quality.’ Thus the analogy of
For some authors, places are competitive regions and cities acting as business entities
in the same way as businesses compete for and clearly cast as either winners or losers in
market share. This notion derives from the a dog-eat-dog competitiveness game is
business economics literature with key fraught with difficulties (Bristow, 2005).
authors such as Michael Porter, Robert
Reich and Lester Thurow being hugely This is not to deny the existence of terri-
influential in spreading the notion that places torial competition. Rivalry manifestly does
vie with one another for economic advan- exist between places and indeed, the local
tage in a manner directly commensurable economic development literature is littered
with that of firms. This idea of place com- with examples of spatial contests over the
petitiveness is thus a direct antecedent of the attraction and retention of mobile capital
globalisation discourse in that it asserts that resources, skilled labour, tourists and events
(Buck et al., 2005). This has spawned grow-
ing interest in the nature and type of assets

345

GILLIAN BRISTOW

required to make local and regional econo- to raise its standard of living and sustain ‘win-
mies attractive or ‘sticky places’ (Markusen, ning’ outcomes. Competitiveness thus resides
1996). However, the critical point is that this principally in the competitiveness of the
competitive behaviour does not necessarily firms operating within a place, with a com-
lead to clearly defined performance out- petitive place being one that has the condi-
comes for places as it does for firms. It may in tions to enable it to generate high profits and
fact have negative consequences not least in wages through having a stock of high value-
the opportunity costs that typically accom- added growth firms.
pany incentive competition and bidding wars
(Markusen, 2007). The difficulty lies in understanding pre-
cisely what these ‘conditions’ are for com-
In short, it is important to distinguish petitive success and when a situation of
between competition and competitiveness ‘competitiveness’ has thus been achieved.
(Kitson et al., 2004).While places may com- Theoretical efforts to comprehend place
pete with one another in certain ways, this is competitiveness are strong in their assertion
not to say they are competitive in the same that the key ingredients shaping it are pre-
way as firms are. Places are not competitive. dominantly endogenous and reside within
Rather they develop and perform. However, the environment within which businesses
inasmuch as the competition between places operate.A wide variety of ‘soft’ locational fac-
occurs for factors which help shape the tors have been suggested as helping to create
development and sustenance of a business a favourable environment for the development
environment conducive to competitive firms, of productive firms, including social capital
there are clear connections with the second, or the norms and trust developed between
much broader conceptualisation of place businesses in a place, the local entrepreneurial
competitiveness which sees it as pertaining culture, the quality of the local living or social
to relative economic prosperity. environment, cultural resources, and place
identity and international image (see
One of the principal proponents of this Cambridge Econometrics et al. (2002) for
broader approach is Michael Storper who a more detailed review). Since these ‘soft’
has played an important role in propagating location factors are also those which might
the concept of regional competitiveness help attract in new investment and labour,
which he defines as: the blurring of boundaries between place
competitiveness and place competition is
the capability of a region to attract and plain to see.
keep firms with stable or increasing
market shares in an activity,while main- Other authors dispute the notion that
taining stable or increasing standards of competitiveness can be directly equated to
living for those who participate in it. local and regional prosperity and instead
argue that competitiveness is ‘revealed’
(Storper, 1997: 264) through the performance of a place’s firms.
Michael Porter’s work is again of seminal
This definition, which has since been widely importance here. Porter has asserted that
applied to cities too, presents competitiveness competitiveness is simply a proxy for pro-
as a wide-ranging, overall measure of eco- ductivity such that the productivity of a place
nomic performance. It is in fact derived from is ultimately reducible to the productivity of
a widely used definition of national com- its firms,whether domestic or foreign-owned
petitiveness.The implicit assumption made is subsidiaries (Porter, 1990, 1998, 2003).
thus that regions and localities are in effect Furthermore, the local and regional environ-
scaled-down versions of a national, macro- ment plays a critical role in shaping firm
economy. Thus, a place is ‘competitive’ productivity since, he argues, ‘comparative
according to this view when it has the ability

346

LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

advantage is created and sustained through a economic transformation proceeds differ-
highly localised process’ (Porter, 1990: 19). ently in different places, and highlights the
ability of a regional economy to adapt to
There may be some justification for defin- changing market conditions and the emer-
ing competitiveness in terms of productivity gence of new technologies and competitors.
and for expecting a link between productiv- It asserts that a region’s competitive advan-
ity and place prosperity. Camagni (2002) tage is a product of its historical, path-
asserts that places compete in terms of abso- dependent development and its capacity to
lute advantage or efficiency, not comparative create new development trajectories, such
advantage. A place may be thought of as that place matters. This perspective is still,
having an absolute competitive advantage however, in its infancy and requires further
when it possesses superior technological, interrogation and critical, empirical analysis.
social, infrastructural or institutional assets
that are external to, but which benefit indi- The concept of place competitiveness is
vidual firms and give them higher produc- thus an inherently chaotic one which lacks a
tivity. Similarly, and in a recent apparent clear, unequivocal and agreed meaning
change in his thinking, Krugman (2003) has within the academic literature.Fundamentally,
argued that a region that is more productive this chaos reflects the absence of a clear theo-
will be able to attract (and retain) labour and retical or conceptual framework for under-
capital from other regions. Furthermore, he standing the competitive performance of
suggests that these factor inflows will subse- places, particularly at the local and regional
quently reinforce the region’s absolute pro- level. As Kitson et al. (2004: 997) observe in
ductivity advantage even further in a virtuous relation to regions, ‘we are far from any
circle. agreed framework for defining, theorising
and empirically analysing regional competi-
However, the conceptualisation of sub- tive advantage’, although they themselves
national (particularly regional) productivity along with other authors such as Budd and
remains somewhat vague. Labour productiv- Hirmis (2004), make some progress towards
ity coupled with the employment rate repre- synthesising the different factors that need to
sent what might be termed measures of be included. Instead, there are a range of dis-
‘revealed competitiveness’ in that they are parate bodies of work, each of which tends
both central components of a place’s eco- to adopt a different perspective and to
nomic performance and its prosperity, but of emphasise a different set of variables. What
themselves say little about the underlying place competitiveness actually means and
attributes and complex processes upon which how it is to be achieved thus remains clouded
they depend. Indeed, there is considerable in a considerable degree of mystery.
confusion as to what actually causes some
places to have higher productivity than Theory led by policy
others,whether it is differential factor endow-
ments, differences in the available knowledge It is perhaps not surprising then that the
base, or the increasing returns that give local policy discourse on place competitiveness is
firms higher productivity (Gardiner et al., equally, if not more, muddled and confused.
2004). The concept of place competitiveness is typi-
cally defined in very broad terms in the policy
For regions, there is growing interest in discourse. In general, policy-makers have
the evolutionary perspective which appears tended to favour the macroeconomic defini-
to offer some promise in respect of its ability tion of place competitiveness which directly
to explain why some regions may develop equates it with prosperity and performance.
firms with a competitive advantage (Boschma,
2004). The evolutionary approach empha- 347
sises dynamic competitive advantage or how

GILLIAN BRISTOW

Thus, for example, the UK government states firms and skilled labour. Competitiveness is a
that regional competitiveness ‘describes the catch-all for the pursuit of business-led
ability of regions to generate high income growth and entrepreneurial place-selling.
and employment levels while remaining
exposed to domestic and international com- In this regard, the discourse of place com-
petition’ (DTI, 2003: 3), a definition also uti- petitiveness constitutes a classic tale of ‘theory
lised by the European Commission.However, led by policy’(Lovering,1999),whereby com-
to confuse matters the UK government also mentators have found themselves engaged in
publishes a range of separate regional com- ex-post rationalisation of a term that has
petitiveness indices where it deliberately already become embedded in common
shies away from making explicit claims policy parlance. Thus, for example, in the
about the causal relationships between firm ODPM (2006) report, efforts are made to
innovation, productivity and overall regional develop a model of urban competitiveness
economic performance. which identifies GDP per capita as the prin-
cipal measure of competitive advantage, with
Similar confusion is evident in relation to this being underpinned by various measures
the competitiveness of cities and city-regions. of revealed competitiveness including pro-
For example, in a research report for the UK ductivity, the employment rate, wage levels
government’s State of the Cities Report and profit rates.These are, in turn, deemed to
(ODPM, 2006), urban competitiveness is be the outcomes of the key drivers of urban
defined as competitive performance, namely innova-
tion, investment, human capital, economic
the ability of cities to continually structure, connectivity, the quality of life and
upgrade their business environment, the structure of decision-making – thereby
skills base, and physical and cultural capturing all the facets of competitiveness
infrastructure, so as to attract and retain raised in the discourse around it, with no real
high-growth, innovative and profitable or clear sense of how they are supposed to
firms, and an advanced creative and interact.
entrepreneurial workforce, to thereby
enable it to achieve a high rate of pro- The implications of the theory led by
ductivity, high employment, high policy approach are also becoming clear.The
wages, high GDP per capita, and low result is striking similarity in the competi-
levels of income inequality and social tiveness strategies being followed across dif-
inclusion. ferent cities and regions around the world
which are routinely characterised by a famil-
This captures various, potentially contradic- iar ‘hotch-potch’ of property, retail and
tory elements of urban economic perform- events-led interventions targeted at improv-
ance and refers to both absolute economic ing the quality of the business, cultural and
performance outcomes, as well as broader social environment. In this regard, they osten-
social and distributional goals. It is however sibly promote and encourage competition
insightful in that it reveals much about what between places around their attractiveness
place competitiveness has come to mean in and image, and carry the clear risk of exacer-
practice. The policy discourse around com- bating spatial inequalities (see Cheshire and
petitiveness clearly tends to conflate the strate- Gordon, 1995).As well as being criticised for
gic pursuit of ‘competitiveness’ as meaning the their ubiquitous ‘one-size-fits-all’ approach
search for improved economic performance, which ignores place specificities (Bristow,
with engagement in competition for resources 2005), such strategies are also under increas-
and the development of boosterist strategies ing attack for the narrowness of the policy
for attracting high-quality,‘knowledge-based’ approach they propagate – an overt focus on
the promotion of a place’s assets rather than
348

LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

their development (Unwin, 2006), the reduc- competitiveness discourse across nations.
tion of a wide diversity of urban and regional For example, Fougner (2006) has argued that
problems to a simple, imported policy agenda the spread of the global competitiveness
(Bristow and Lovering, 2006) when in fact discourse is a deliberate tactic on the part
there may be multiple routes to growth of developed countries and the OECD to
(Turok,2008),and the overwhelming empha- maintain the neoliberal capitalist hegemony
sis upon a narrow, private sector-based route and rationality of governance within
to place prosperity which rarely takes account advanced capitalist countries and spread it to
of the non-economic variables essential to the global South. This in turn privileges the
the social reproduction of everyday life particular ‘attractiveness’-oriented concep-
( Jarvis, 2007). In particular, competitiveness tion of competitiveness which has become
strategies do not demonstrate any concern dominant – in short, it makes sense to consti-
with who benefits from these productive tute states and their populations as competi-
firms and supposedly competitive places, nor tive and entrepreneurial ‘place-sellers’ in a
indeed of the sustainability of these outcomes global marketplace for investment. Similarly,
or their fit with the broader social needs, Rosamund (2002) demonstrates that the rise
development objectives and environmental to prominence of competitiveness as a strate-
limits of a place. Competitiveness, it seems, is gic imperative in the EU reflects its utility as
at one and the same time commonsensical, a strategic device for asserting the sense of a
common place and ‘care-less’. functional European space economy.This, in
turn, helps legitimise its broader agendas as
Understanding the enduring regards both the Europeanisation of govern-
policy appeal of competitiveness ance capacity and the deepening of integra-
tion processes.
The limitations of place competitiveness
inevitably lead to a range of questions around More recently, the development of the
how and why such a poorly understood con- Cultural Political Economy (CPE) approach
cept has assumed such significance in local has provided a potentially useful framework
and regional economic development policy for understanding how and why particular
circles. This focuses attention on the policy ideas, such as competitiveness, arise, spread
process and the relative importance of ideas and become materially implicated in every-
and interests in the formulation of strategic day life (see Jessop, 2005).The CPE approach
policy agendas and approaches. It also focuses first emerged from research into the ‘entre-
attention on the ways and means by which preneurial city’ which was instrumental in
these ideas are then spread through relevant the development of two key notions. The
networks of policy actors and across spatial first of these was the assertion that cities or
scales. These are ostensibly questions con- regions are actors or ‘spaces for themselves’
cerning the political economy of competi- endowed with ‘capacities to realise particular
tiveness which until relatively recently have discursive-material accumulation strategies
received only limited attention (Bristow, and hegemonic projects’ ( Jessop and
2005).These questions are, however, rising to Sum, 2000: 2310). This was significant in its
the fore in line with the emergence of dis- direct implication that cities and regions are
cursive approaches to understanding the capable of pursuing innovative strategies to
policy process. maintain or enhance their economic com-
petitiveness vis-à-vis other economic spaces.
Indeed, a number of authors have applied As such, they are increasingly like nations.
political economy approaches to demonstrate The second notion developed was that of
the hegemonic or dominant status of the ‘economic imaginaries’.These are subsets of
economic activity (such as competitiveness,

349

GILLIAN BRISTOW

innovation and workfare) which are discur- resonance with key interest groups and
sive constructs transformed into sites and policy-makers. The intuitive appeal of com-
objects of observation, calculation and gov- petitiveness to business is relatively easy to
ernance and thus used by the state to secure understand. Businesses are familiar with
hegemony (Sum and Jessop, 2001). Darwinian notions of cut-throat competi-
tion and survival of the fittest. So it is not
The CPE approach asserts that the con- surprising that business interests within places
struction of an economic imaginary involves are keen to promote and support policies
a number of distinct evolutionary stages. which prioritise and assist competitive firms
First, there is a process of ‘selection’ whereby and oil the wheels of the wider business
particular discourses are prioritised in terms environment. It is also easy to see how key
of their ability to interpret and explain par- proponents of the idea of competitiveness
ticular events. Second is the process of ‘reten- have effectively worked to spread its logic
tion’ whereby these discourses are repeatedly from nations,to regions and to cities.Powerful
incorporated into a wide range of institu- organisations such as the OECD and EU
tional sites, roles, routines and strategies. have developed prominent tools and tech-
Third is the process of ‘reinforcement’ niques for benchmarking the competitive
whereby these discourses are restated and performance of places including competi-
embedded in procedural mechanisms, gov- tiveness indices and league tables and a pleth-
ernance structures, rules and regulations such ora of best-practice reports and policy transfer
that they become a naturalised discourse studies. In turn, a highly profitable, influential
(Jessop, 2005). According to Jessop (2005) and networked regional and urban develop-
there are a range of institutions and actors ment industry has emerged, which is charac-
such as government departments, business terised by a range of high-profile consultants,
organisations, the OECD, the EU and the development agencies and think-tanks.These
World Bank that are likely to seek to estab- work collectively to spread the key ideas
lish and institutionalise such imaginaries. around competitiveness between places and
They use a range of discursive vehicles or across the world, to share what is supposed to
‘genre chains’ (Sum, 2004) such as policy be best practice, and promote the imitation
documents and strategy reports to reinforce of successful, if ultimately rather stylised,
these imaginaries to suit their particular forms of policy intervention.
purposes.
The appeal of place competitiveness to
The value of the CPE approach lies in its policy-makers at all spatial scales is also easily
ability to help avoid naïve acceptance of com- understood when considering competitive-
petitiveness, and instead to provoke interro- ness ostensibly as an idea, promoted by par-
gation of the political dynamics of its ticular and powerful interests.The vague and
evolution and utility for advancing particular nebulous nature of the competitiveness con-
policy goals and discouraging others. It cept acts perhaps as one of its principal
remains developmental and in need of strengths for policy-makers. It becomes a
refinement and testing, not least to consider veritable garbage-can into which all relevant
how the spread of key economic imaginaries strategic actions for the support of particular
is linked with processes of state rescaling, as goals can be thrown. For cities and regions,
well as with material developments and the most striking characteristic of competi-
change ( Jones, 2008). Nonetheless, it pro- tiveness strategies is indeed their extreme
vides a useful framework for understanding vagueness and flexibility over time. In the
the policy appeal of place competitiveness event, the commitment to competitiveness
and its durability (see Bristow, forthcoming). can thus be interpreted as authorising key
players in urban and regional governance to
What becomes clear when examining the
political economy of competitiveness is its

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LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

adapt to circumstances and opportunities as reinserted into the local and regional devel-
and when they arise, and especially as they opment policy lexicon; and finally, whether
have been proposed by potential investors, and how local strategic interventions can pri-
notably in the property development sector oritise broader, more socially just and eco-
(Bristow and Lovering, 2006; see also Chien logically attuned development goals over
and Gordon, 2008).At times, competitiveness narrow, entrepreneurial place-selling mantras.
can also be used strategically to justify the
support of particular ailing local businesses In emphasising that competitiveness and
perhaps for political purposes or electoral indeed neoliberalism are social and political
gain. At other times, the cloak of competi- constructs, the CPE approach usefully high-
tiveness usefully absolves local policy-makers lights that they are not immune from chal-
from responsibility inasmuch as the winds of lenge. While economic imaginaries such as
global competition and change can be con- competitiveness can be discursively con-
veniently presented as variables which are structed and materially reproduced at differ-
essentially outwith local responsibility and ent sites and scales, they are only ever likely
control. Perhaps more disturbingly, competi- to be partially constituted and will remain
tiveness-speak may create a trap for local and contingent. As Jessop (2005: 146) observes,
regional policy-makers from which, once the process of material reproduction ‘always
ensnared, they struggle to break free. To fail occurs in and through struggles conducted
to pursue competitiveness or to opt out of by specific agents, typically involves the
the competitiveness game completely might asymmetrical manipulation of power and
be regarded as either a sign of weakness or a knowledge, and is liable to contestation and
submission of defeat to erstwhile rivals. resistance’.This means that there will always
remain space for competing imaginaries to
Moving beyond competitiveness challenge the dominant ones.

It would thus appear as if there is no alterna- While the probability that neoliberalism
tive for places but to adopt competitiveness- itself will be toppled may be unlikely, the
orientated policies. The story of inescapable potential for certain catalytic forces such as
globalisation, competitiveness and economic climate change, the onset of peak oil and the
neoliberalism is indeed a very pervasive one current economic crisis to destabilise it and
such that even policies which appear not to provoke change should not be entirely ruled
be about competitiveness become subsumed out and may indeed be gathering momen-
to its clutches.As Massey (2000:282) observes, tum. Certainly, these forces may be of such
‘every attempt at radical otherness [becomes] magnitude in the years ahead to impel a new,
quickly commercialised and sold or used to global concern with frugality, egalitarianism
sell….With all of this, one might as well ask and localism in response to changing public
what are, and where are, the possibilities for and political opinion. As Leitner et al. (2007:
doing things differently?’ To put it another 325) observe: ‘what was made can be
way, the growing awareness of the limitations unmade’, and indeed the first step in visualis-
of competitiveness-oriented policies raises a ing a politics beyond neoliberalism may be to
number of critical questions around, first, the acknowledge that hegemonic does not nec-
scope for a fundamental transformative shift essarily mean everlasting.
in the extralocal rules of the game set by
neoliberalism and its privileging of economic A second step is to acknowledge that the
rationality; second, whether and how an dominant indicators of competitiveness and
enhanced sense of place and context can be place prosperity provide an inordinately
narrow, economic metric of development
which focuses attention on instrumental inputs
or means to development, rather than intrinsi-
cally significant longer term policy ends or

351

GILLIAN BRISTOW

outcomes (such as health, well-being and reinforced – a sort of transformation from
a sustainable natural environment) (Morgan, below (Leitner et al., 2007).There is growing
2004). The search for a metric which evidence that substantive matters of struggle
treats progress and well-being as one of its around redistribution and the material con-
premier indicators of development is gather- ditions of economic growth and uneven
ing momentum at the international scale. For development provide for substantive resist-
example, the Stiglitz-Sen Commission of ance to the global hegemony of competitive-
high-profile international economists is cur- ness (Krueger and Savage, 2007; Leitner et al.,
rently reviewing a range of alternative 2007). Within a fragile and susceptible capi-
metrics of development with a view to estab- talism there are thus a wide variety of ‘alter-
lishing how to improve the calculation of native’ economic spaces and practices which
GDP; how to incorporate new measures of are centred much less around capital accu-
economic, social and environmental sustain- mulation and much more around the crea-
ability into national accounting; and how to tion of ‘smart growth’ to shape more socially
devise fresh indicators for assessing quality of just,ecologically sustainable and ethical urban
life. Given the prominent role played by such and regional environments, such as transition
indicators in spreading key imaginaries, dis- towns, local exchange and trading systems,
mantling and reforming them will, in turn, not to mention a wide range of social and
go a long way towards changing political pri- ethical business enterprises. The enduring
orities and creating new ideals around the question appears to remain what capacity
collective social improvement of the oppor- exists for scaling up these often diverse local-
tunities or ‘capabilities’ of all individuals, ised struggles into some sort of broader
the pursuit of happiness, sustainability and political project capable of challenging the
overall well-being – the moral norms that dominant thinking (Leyshon et al., 2003;
unite us and provide constraints on the Leitner et al., 2007).
utility-enhancing choices nations may make
(see Nussbaum, 2000). While these practical experiments are
inherently diverse, there are some common-
Clearly, local and regional action to assist alities in the discourses and visions for a more
the development of a more progressive policy progressive local and regional development
is also important. The growing critique of agenda which appear to be emerging in
place competitiveness clearly shines a light practice.They are linked by a desire to effect
on the capacities within localities to effect a more socially and environmentally ori-
change. Regions and cities are not univocal ented, smaller scale, place-based approach to
subjects of the policy decisions and mantras local and regional development – ostensibly
developed elsewhere. They are instead char- one which creates resilience in the face of
acterised by agonistic politics between diverse the destabilising winds of economic and
and multiple interests and groups with vary- environmental change. Focusing on what
ing aspirations and goals. They also have unites rather than what divides these dis-
increasing capacities to make their own courses is potentially very important inas-
political choices in response to these demands, much as it may open up new opportunities
albeit within certain parameters (Hudson, to examine the specific ordering and spatial-
2007), not least in the proactive support for ity of projects required effectively to chal-
new metrics of development. lenge conventional approaches (Holloway
et al., 2007) – perhaps, for instance, through
Indeed, there is evidently scope for new, the development of new networks to achieve
alternative economic imaginaries to emerge social change and address the challenges
out of the local contests and battles around which increasingly straddle global and local
competitiveness, which ultimately may boundaries.
themselves then be selected, retained and

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LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

Fortunately, these commonalities also use- in local and regional development policy
fully resonate with recent theoretical devel- precisely because it lacks precision and is
opments in the study of city and regions inherently chaotic. The emergent political
which emphasise the broader and more qual- economy approaches explored here provide
itative character of ‘development’ as opposed valuable insights into understanding the sub-
to simply economic performance or growth. sequent malleability of the discourse and thus
As well as being inherently diverse, local and its utility to both policy-makers and the key
regional development trajectories and pro- groups keen to promote the interests it serves.
cesses are also increasingly understood to be However, it is also demonstrably a limiting,
evolutionary, context-specific and path- growth-first discourse with the potential
dependent.As Pike et al. (2007: 1258) observe, to effect and enhance uneven develop-
‘from Hackney to Honolulu to Hong Kong, ment between places, while simultaneously
each place has evolving histories, legacies, failing to address more fundamental social
institutions and other distinctive characteris- and ecological matters concerning a place’s
tics that impart place dependencies and shape development.
– inter alia – its economic assets and trajecto-
ries, social outlooks, environmental concerns, In this light, there is a developing literature
politics and culture’. These developments which asserts that local and regional devel-
have spawned some important questions for opment and well-being should be conceived
critical research including the extent to and implemented on the basis of a broader
which these alternative practices are locally ontology in which the economic imperative
or regionally constructed and embedded, or – the global competitiveness of firms – is
to put it another way, whether in this case only one rationale.As has been demonstrated,
scale and also place matters (North, 2005). however, the scope for the selection and
The formative links between these alterna- retention of an alternative, more context-
tives, their emergent economic geographies specific discourse around city and regional
and the practices and values of mainstream resilience will critically depend upon the
capitalist activities also remain under- relative importance of both the catalytic
researched, with a clear imperative emerging forces for extra-local change, as well as the
to rethink the links between social and eco- more permissive factors within places.These
nomic relations in regions.The management surround the role of political choice within
of collective consumption and social repro- the constraints of capitalist social relations,
duction and the centrality of ecological and the opportunities for scaling up localised
resources to the evolutionary process that is struggles around the competitiveness imper-
local and regional development are also ative. As such, there are likely to be multiple,
clearly missing links in dominant spatial complex and contingent pathways to alter-
development literatures. In short, there is a native development strategies. What is also
need for a wider utilitarian debate and analy- likely is that action at the local level will only
sis in local and regional studies – one that is go so far in fostering relevant changes.Nation
characterised by a broader concern with states remain dominant actors in pertinent
progress or well-being, and the potentially global discussions around the development
diverse approaches to achieving it. of new metrics and regulatory regimes, as
well as playing a critical role through devolu-
Conclusions tion processes in shaping the powers,
resources and capacities available at sub-
In conclusion, place competitiveness has national scales to enable and empower strong
become a ubiquitous and dominant mantra local action. Practical action and policy
change must also be informed by improved
understanding of precisely how regions and

353

GILLIAN BRISTOW

cities actually work.The story of place com- state:?’, Review of International Studies, vol. 32,
petitiveness is illustrative of the very real and 165–185.
significant dangers of theory led by policy. It Gardiner, B., Martin, R. and Tyler, P. (2004)
is a challenge to which theorists now need to ‘Competitiveness, productivity and economic
respond. growth across the European regions’, Regional
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355

30

Finance and local and regional
economic development

Felicity Wray, Neill Marshall and Jane Pollard

Introduction in financial engineering rather than fostering
early stage entrepreneurs.
One often overlooked area in economic
geography is a suite of questions concerning Venture capital has an important role in
the role of finance in local and regional eco- promoting local and regional development
nomic development.This is testimony to the for several reasons. First, classic venture capi-
relatively marginal location of finance in talists are often successful entrepreneurs and
economic geography (Courlet and Soulage can contribute to local firm formation and
1995, Martin 1999, Pollard 2003, Clark 2006, growth and generally support entrepreneur-
Pike and Pollard 2010) and a tendency to ship (Mason and Harrison 1995, 1996, 1997,
examine ‘flows’ of money, rather than the 1999,Martin et al. 2005,Zook 2002).Second,
“processes and practices that shape and gen- by funding new ideas and helping to prove
erate the flows” (Pryke 2006: 7). More par- concepts, venture capitalists help underpin
ticularly, it reflects a long-standing tendency innovative knowledge economies and may
in economic geography to treat firm finance play an integral part in the development of
as something of a ‘black box’ and a largely local technological infrastructure (Florida
taken-for-granted aspect of production and Smith 1995, Saxenian 1994). Third,
(Pollard 2003). venture capitalists can add to a locality’s insti-
tutional thickness, and act as both capitalists
‘Venture capital’ is an umbrella term refer- and catalysts for local and regional develop-
ring to specialist forms of finance – found ment (Keeble and Wilkinson 2000).
most especially in the global North – that can
be used to prove a business concept, help start This chapter develops two interrelated
up a business or allow businesses to expand. arguments. First, we argue that analyses of
So-called ‘classic venture capital’ investments venture capital remain relatively underdevel-
refer to equity used to help business start-ups. oped in economic geography; while many
A second form of venture capital, ‘merchant areas of economic geography have long been
venture capital’, refers to using equity to fund sensitised to cultural political economy
management buy-outs and buy-ins.The skill approaches that stress the sociality of markets
sets of merchant venture capitalists usually lie and different types and flows of knowledge,
these debates have yet to touch analyses of

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FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

venture capital in any significant way. Second, South East as a source and destination of
we argue that many analyses of the venture flows of money and finance. Such concentra-
capital industry have – as is true of other tion may pose significant challenges for the
parts of financial geography – focused on economic development trajectories of
empirical cases in ‘successful’ regions and regions beyond London and the South East;
cities.Thus there is a corpus of work focused many commentators stress the importance of
on venture capital in Cambridge (UK) (Klagge physical proximity between venture capital-
and Martin 2005, Keeble and Wilkinson ists and entrepreneurs to facilitate invest-
2000), Boston (Babcock-Lumish 2004) and ments (Klagge and Martin 2005, Mason and
Silicon Valley (Saxenian 1994, Zook 2004). Harrison 2002, 2003, Zook 2004).
In what follows, we outline the workings of
the venture capital industry in two less afflu- A third trend in work on venture capital,
ent and less ‘successful’ English regions – the and particularly that circulating in policy cir-
North East and the East Midlands. Our anal- cles, is the way in which the availability and
ysis suggests that variations in venture capi- take-up of venture capital has tended to be
talists’ financial knowledges play a significant conceived in the language of supply and
role in explaining regional variations in demand. Thus, a lack of venture capital
venture capital activity and generate some investments in a particular region is typically
more complex narratives about the relation- attributed either to a lack of entrepreneurial
ship between finance and local economic demand for finance or, alternatively, blamed
development. on a lack of supply of funds from financial
institutions who are risk averse (a phenome-
Research on the venture non that has resurfaced in the current ‘credit
capital industry crunch’). A corollary of this supply and
demand discourse is the idea that some places
To date, research on venture capital and or regions endure ‘finance gaps’, reflecting a
regional development has tended to take one spatial mismatch between the demand and/
of three forms. First, important contributions or supply of finance.
have mapped the spatial distribution and
take-up of venture capital investment (see, The concept of a ‘finance gap’ has been
for example, Mason and Harrison 2002, very influential in UK policy circles. In 2002
Klagge and Martin 2005). Highlighting such the UK government injected a regional
spatial variations has allowed comparisons to dimension into venture capital policy by
be made between venture capital ‘rich’ and introducing Regional Venture Capital Funds
‘poor’ regions (Figure 30.1). Such work has (RVCFs) to counteract the spatial concentra-
also distinguished between ‘classic’ and ‘mer- tion of venture capital funds/investments in
chant’ venture capital investments. London and the considerably lower rates of
firm start-ups in regions outside London and
A second trend characterising work on the South East. This policy reflected a sup-
venture capital in the UK context has been ply-side conception of ‘the venture capital
to highlight the spatial concentration of finan- problem’; relatively low rates of new business
cial industries in the City of London and the formation in the UK were to be addressed by
rest of South East England (Mason 1987). increasing the supply of equity in all the
This concentration shapes flows of venture English regions and having those funds man-
capital and the reproduction of long-standing aged by managers assumed to have local
patterns of uneven regional development. knowledge and expertise. Mason and
Martin and Minns (1995), for example, high- Harrison (2003) critiqued the policy on four
lighted the dominance of London and the counts: the lack of early stage venture capital
skills available to manage the funds, the small
size of the funds, the maximum investment

357

F E L I C I T Y W R AY, N E IL L M ARSHAL L AND JANE POL LAR D

1000

Amount invested by 500
Region £million
0
1998 1999 2000

500

0 2500
SCOTLAND 2000

1500

500 1000

500 1500 0 500
0 1000 NORTH EAST
NORTHERN 0
IRELAND 500 LONDON

0 kilometres 100 500 0
YORKSHIRE & THE
0 HUMBER
NORTH WEST &
MERSEYSIDE 1000

500

1000

500 500
0
0
WALES 500 EAST MIDLANDS

1500 0
EASTERN

0
WEST MIDLANDS

1000

500 500

0 0
SOUTH WEST SOUTH EAST

Figure 30.1 Regional distribution of venture capital investments by value, government office regions,
1998–2000.
Source: Adapted from Mason and Harrison (2002: 440)

limits on the funds which left them unable to equity gaps.They concluded a more compre-
address the main ‘finance gap’ in the English hensive approach was required to address
regions (investments in the £250,000 to regional equity capital gaps in the UK.
£1 million range) and the neglect of the
demand-side constraints that contribute to What might this more comprehensive
approach look like? In what follows, we draw
358

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

on recent relational economic geography money and unveiling the different forms of
perspectives on cultures of money to argue financial knowledge or ‘calculative practices’
that in addition to conceiving regional (Callon 1998) that stabilise financial markets.
finance gaps as quantitative problems – of These authors have encouraged a growing
supply of and demand for venture capital – it emphasis on examining the microdynamics
is important to recognise and understand of money.
spatial variations in the qualitative dynamics
– financial knowledges embodied by differ- A second hallmark of these literatures is
ent agents involved in the venture capital greater sensitivity to the different systems of
industry – that produce and reproduce these meanings that are established by individuals
perceived ‘finance gaps’. and groups in relation to the circulation of
money. Here the networks through which
A relational perspective money is circulated are critically important
on venture capital and are the means whereby money is medi-
ated, appropriated and made sense of by par-
Previous political economic and institutional ticular communities. Drawing on Simmel
research has highlighted the uneven geogra- (1978), Allen and Pryke (1999: 65) suggest it
phies of UK financial flows, institutions and is possible to talk about “money cultures…
financial infrastructure (Leyshon and Thrift made up of people who position themselves
1995, Martin and Minns 1995, Martin et al. in relation to the circulation of money and
2005). In the context of research on the ven- are also positioned by it”. Such a perspective
ture capital industry, an interesting paradox makes it possible to talk about multiple
has been revealed; the North East of England money cultures that vary over place but
is venture capital ‘rich’, yet persistently which intersect with and are shaped by
endures the lowest volume of venture capital gender, ethnicity, age, class and so forth.
activity of all the English regions.This chap-
ter argues that to understand this paradox, In similar vein, Communities of Practice
we need to complement political economic (CoP) literatures (Wenger 1999, Lave and
and institutional approaches – that devote Wenger 1991) emphasise how people in a
relatively little attention to exploring the shared enterprise generate new knowledge
dynamics of money at the local level (Martin and practices and draw attention to the com-
1999, Pollard 2003) – with a finer grained munities that underpin and produce money
analysis of the ways in which venture capital- cultures as well as fostering a greater aware-
ists and entrepreneurs come together and do ness of how different networks of agents
business. acquire, embody and mobilise financial
knowledges. Conceptualising venture capi-
More recent literatures on cultural politi- talists and entrepreneurs as communities of
cal economies of money provide a starting practice helps account for the different mean-
point from which to complement current ings and financial knowledges that agents
understandings of the processes and practices attach to equity and their different ways of
of the venture capital industry. Broadly, these approaching the lending process. A further
literatures stress the socially constructed facet of the CoP literature is its important
nature of the economy (Lee and Wills 1997, critique of accounts of regional learning that
Crang 1997, Gertler 1997) and the assemblage stressed the importance of physical proximity
of people, objects and activities that make up for knowledge exchange. Instead, CoP litera-
markets (see Du Gay and Pryke 2002). In the tures argue that knowledge, in all its forms,
context of geographies of money, these lit- can be exchanged through physically distant
eratures advocate getting beneath flows of agents and that communities can access as
well as circulate the same sets of knowledge
at a distance (Vallance 2007, Faulconbridge

359

F E L I C I T Y W R AY, N E IL L M ARSHAL L AND JANE POL LAR D

2006, Hall 2006, Amin and Cohendet 2004, development (Bathelt and Glucker 2003,
Allen 2004). From this perspective, spatially Ettlinger 2003).Their recognition of the net-
dispersed venture capitalists may be con- works of connections between venture capi-
nected to the same monetary networks, talists, investors and entrepreneurs makes it
accessing and circulating similar financial possible to explore the relational advantage
knowledges, and ultimately be part of the (Yeung 2005) of different financial networks
same CoP, while physically proximate ven- and provide a more satisfactory way of
ture capitalists may belong to separate CoPs. understanding how financial knowledge is
circulated across and within monetary net-
Finally, the preoccupation with mapping works with different spatial reaches. This
and quantifying the venture capital industry allows us to explore how, if at all, the con-
and the reliance on data collected by admin- nectivity of professional finance agents in a
istrative region has tended to reinforce a spa- locality makes a difference to the chances of
tially bounded treatment of the industry local entrepreneurs securing finance and
wherein regions are conceived as spatial con- becoming investment ready.
tainers for investment activity rather than as
networks of social relations.As such, the spa- In sum, these theoretical insights suggest
tiality of venture capitalists networks, which an analytical treatment of the venture capital
often transcend regional boundaries, has industry that problematises agency, creates a
been relatively neglected.The ‘relational turn’ more socialised account of the industry and
in economic geography (Amin 2004, Amin engages with the dynamics and intersections
and Cohendet 1999, 2004, Allen 2000, of money and finance in a variety of spaces.
Massey et al. 2003, Massey 2004, Marston In the next section, we demonstrate the
2000) refers to a set of more topological ways merit of such an approach to understand the
of seeing space that no longer correspond to emergence, production and dynamics of
neat scalar or territorial packages.Within this finance gaps at the local level. Specifically, we
heuristic, places become defined as the sum interrogate agents’ embodied financial
of connections and networks of varying knowledges, behaviours and spaces of inter-
lengths, speed and duration that intersect and action and connectivity in a comparative
combine with human, technological and study of two case study regions, the East
biological elements (Amin 2007: 102) and at Midlands and the North East of England.
all times “these combinations are always rub-
bing against historically shaped territorial Venture capital networks in the
formations” (ibid.). From this perspective North East and the East Midlands
neither networks nor territories are given
preference. Rather places are sites of intersec- The North East and the East Midlands
tion between network topologies and terri- regions of England have interesting similari-
torial legacies (Amin 2007).The emphasis on ties, but also differences. The North East of
connectivity and networks, plus the alterna- England is usually described as an ‘old indus-
tive spatial ontology advocated in relational trial region’ which occupies a peripheral
approaches to economic geography is a useful position – economically and geographically
framework to escape the territorially bounded – in relation to London and the South East
readings of the venture capital industry and (Pike 2006,Hudson 2005).The East Midlands
provides an alternative way of theorising the is characterised by average performance
industry that recasts it as a stretched out and when compared to other regions on a range
networked construction. of economic performance indicators (Crewe
1995) and considered to be a ‘middling
Relational approaches provide a different region’ (Hardill et al. 2006). Both regions
‘take’ on the impact of actors and their pat-
terns of behaviour on spatial economic

360

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

have had to reposition themselves and adapt amount that can be invested. When com-
to a decline in their traditional industries: pared with the East Midlands, the North East
coal-mining, steel-making, shipbuilding and appears relatively ‘rich’ in terms of providers
chemicals in the North East, and textiles, of equity, although the East Midlands
steel and some limited coal-mining in the Regional Venture Capital Fund (RVCF) is
East Midlands. double the size of that in the North East.
There are three noteworthy features of ven-
Both regions have relatively small popula- ture capital provision in the North East. First,
tions and the lowest rates (in England) of the region is reliant on public sector man-
VAT registrations with an average of 45,330 aged equity. Second, it has a relatively even
and 123,818 registrations in the North East concentration of equity funds across four
and East Midlands respectively between 2003 main institutions.Third, although the North
and 2005 (ONS 2006). Table 30.1 demon- East has considerably more venture capital
strates that in terms of private equity-backed finance than the East Midlands, it records
companies per ‘000 population, the number fewer transactions than is the case in the East
of start-ups per thousand population, and the Midlands.
location quotient of venture capital-backed
companies (measured by the number of In what follows, we draw on observational
companies that receive equity per 1000 of research and semi-structured interviews with
total VAT registered businesses) neither professional finance agents and entrepreneurs
region can be considered to be particularly in the two regions (see Tables 30.3 and 30.4);
dynamic in terms of venture capital activity all the entrepreneurs were seeking equity
compared with London and the South East. and the professional finance agents either
Table 30.2 provides further detail regarding supplied venture capital or coached entre-
the levels of venture capital investment, both preneurs to become investment ready. Table
classic and merchant. Between 2005 and 30.4 highlights how East Midland entrepre-
2007, the North East secures between neurs tended to be slightly more concen-
1 and 4 per cent of all merchant investments, trated in more innovative,higher value-added
while the East Midlands fluctuates between and high-technology sectors than their
4 and 6 per cent; London and the South East North Eastern counterparts who where
secured 41 per cent of these kinds of deals. slightly more concentrated in more tradi-
tional manufacturing. These sectoral differ-
Figure 30.2 describes the indigenous equity ences partly reflect the industrial structures
funds of each region, including the fund of each region.
managers, the size of fund and the maximum

Table 30.1 Business start-up rates, private equity backed companies and location quotients of equity
backed companies, 2003–2005

Start-ups LQ No. of Start-ups LQ No. of Start-ups LQ No. of
per 1000 PEBC* per per 1000 PEBC per 1000 PEBC per
popn in ‘000 popn in 2004 per ‘ooo in 2005 ‘000 popn
2003 in 2003 popn in 2005
in 2004

North East 17 0.83 1.46 17 1.21 2.16 17 0.68 1.64
East Midlands 28 0.52 1.50
London 38 0.93 3.59 28 0.58 1.68 29 0.52 1.39
South East 35 0.97 3.42
38 0.91 3.53 38 0.93 3.88

35 0.91 3.19 35 0.95 2.90

*PEBC = Number of private equity-backed companies.
Source:Wray (2007)

361

Table 30.2 Number and percentages of merchant and classic investments by region, 2005–2007

Early stage/classic investments MBO/MBI merchant investments

Pop–share 2005 2006 2007 2005 2006 2007
2003–2005

South East 16.2 Number % Number % Number % Number % Number % Number %
London 14.8
South West 104 21.18 90 18.00 88 17.53 47 15.26 55 15.07 44 12.61
East of England 10 75 15.27 104 20.80 110 21.91 70 22.73 107 29.32 100 28.65
West Midlands 11 42 8.55 35 7.00 29 5.78 21 6.82 29 7.95 15 4.30
East Midlands 10.6 61 12.42 50 10.00 50 9.96 21 6.82 22 6.03 22 6.30
Yorkshire & Humber 8.5 24 4.89 35 7.00 32 6.37 27 8.77 25 6.85 21 6.02
North West 10 22 4.48 20 4.00 18 3.59 19 6.17 15 4.11 22 6.30
North East 13.6 20 4.07 10 2.00 19 3.78 20 6.49 29 7.95 35 10.03
Scotland 5.1 65 13.24 70 14.00 77 15.34 51 16.56 51 13.97 48 13.75
Wales – 16 3.26 10 2.00 19 3.78 3 0.97 11 3.01 15 4.30
N. Ireland – 36 7.33 40 8.00 34 6.77 18 5.84 10 2.74 12 3.44
– 13 2.65 20 4.00 17 3.39 8 2.60 11 3.01 13 3.72
TOTAL 13 2.65 16 3.20 1.79 3 0.97
9 – 0.00 2 0.57
491 100 500 100 100 308 100
502 365 100 349 100

Source: BVCA (2008: 29)

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

Catapult East Midlands
Venture Manger Business Angels

RVCF Network

£50-250k £30m ??

Sources of equity NVM UK Steel
finance Indigenous to the £1m-7.5m ? Enterprise

East Midlands £25-250k £30m
UK wide
Lachesis Fund
Spin out fund for East BIG Entrust
Midlands universities North East Business NEMF3
£10-250k £7-9m
Angels Network £25-100k £2.5m

? “£4m”

Sources of equity
finance Indigenous to the

North East

NEL NStar
RVCF PoC COIF

NITR £50- £15m NESCF
250k

£60 or £10m Varies £23m
£90k
upto £1m Evolve £30 - £3.2m
50k Finance (debt 250k

funding)

£15- ?
20k

Figure 30.2 Regional financial architectures: indigenous supplies of equity.
Source: Wray (2007)

Table 30.3 Research summary North East East Midlands

Entrepreneurs interviewed 20 20
Professional finance agents interviewed 21 17
Number of times non-participant observation was undertaken 13 6
Source:Wray (2007)

Table 30.4 Number of entrepreneurs interviewed by sector (informed
by SIC codes)

East Midlands North East

Software consultancy and design 8 11
Manufacturing 1 5
Product design 5 0
Leisure/lifestyle 1 2
Research and experimental development in
natural sciences and engineering 4 1
Railway maintenance 0 1
Biochemical analysis and testing 1 0

Source:Wray (2007)

363

F E L I C I T Y W R AY, N E IL L M ARSHAL L AND JANE POL LAR D

The professional finance agents In the East Midlands, by contrast, profes-
sional finance agents were bound together
There were important differences in the through a variety of linkages and interde-
biographies and work histories of the ven- pendencies ranging from formal contracts to
ture capitalists interviewed in the two regions. verbal commitments; they described work-
North East finance agents came predomi- ing in a community predicated on trust, rec-
nantly from backgrounds in commercial iprocity and sharing financial knowledge and
banking or public service. By contrast, 52 per expertise. The collaborative behaviour and
cent of finance agents in the East Midlands sentiments served to produce a high-quality
had either been venture capitalists in well- ‘buzz’ in the financial milieu and a stock of
known equity firms, worked in large private localised capabilities and expertise that
consultancy firms specialising in biotech or finance agents drew on regularly to react to
pharmaceuticals and/or were also successful gaps in provision or demand. East Midlands
entrepreneurs and active business angels. A finance agents felt they accrued benefits from
further finding was that 15 of the 17 East being in close proximity to other agents.
Midland finance agents had arrived in the Overall the East Midlands finance agents
region from elsewhere; in the North East, by were a community of practice that operated
contrast, all but two finance agents were in similar money cultures. To what extent
either from the region or had remained in these different ways of behaving/doing ven-
the region from their days at university. ture capital had an impact on local entrepre-
neurs and ultimately local development
Each regional finance community of trajectories will be discussed in Section V.
professional finance agents was governed by
different norms and values which produced The differences in the linkages and inter-
different kinds of behaviour.Very few inter- connections of the various financial commu-
dependencies, linkages, reciprocal arrange- nities were also reflected in their spatial reach.
ments or instances of collaboration existed Over three-quarters of North East finance
between North East finance agents; instead, a agents interviewed operated mostly at the
culture of hostility, suspicion and mistrust scale of the region and were disconnected
prevailed. Local finance agents felt their from wider investor networks.Three-quarters
counterparts were more concerned with of North East finance agents did not con-
“having their own agendas to prolong their sider engaging beyond the region important
own existence” (Business Angel, February for them and their business, and they per-
2005), rather than fostering entrepreneur- ceived there to be limited, if any, need for
ship, and were suspicious of the capabilities links between the North East’s financial
and conduct of local institutions claiming milieu and investors located elsewhere. Some
that they were “slow and cumbersome” explained the lack of links in terms of their
(Finance Intermediary, February 2005), perception that non-local investors did not
“ineffective and fragmented” (Corporate see the North East as a profitable place to do
Financier, February 2005), produced “appall- business, while others admitted that they
ing business plans” (Business Angel, March deliberately excluded themselves from non-
2005) or that “retired bank managers are not local networks to reduce the threat of com-
going to encourage and foster the ambitions petition. Others suggested it was too
of entrepreneurs” (FormerVenture Capitalist, expensive to engage non-locally, and believed
March 2005). Finance agents in the North there were positive benefits accruing from
East tended to operate in isolation from each isolation: “being insular is a good thing; it
other; they demonstrated that physical prox- helps us to make money” (Corporate
imity does not necessarily breed familiarity Financier). The decision by North East
and linkage. finance agents to operate solely at the scale of

364

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

the region meant they probably relied on and practising venture capital. The institu-
more limited financial knowledges and had tional terrain of the East Midlands was richer
fewer opportunities to develop organisational than the North East in terms of support
proximity with investors from more success- agencies mentioned by entrepreneurs seek-
ful and buoyant investment contexts. ing finance and this helped filter how entre-
preneurs accessed funds and financial advice.
In contrast, the East Midland finance
agents argued it was important to be part of The multiple ties that existed between the
networks beyond the region. Reasons given agencies may indicate an institutional capac-
included the opportunity to access funds ity to coordinate a response to obstacles and
for local entrepreneurs, to share and learn problems in the East Midlands. The thinner
from best practice, to access other investment institutional structure of the North East, the
opportunities and to promote the East longevity of the two main institutions dedi-
Midlands as an attractive place in which to cated to supporting entrepreneurship (Entrust
invest. To maintain and forge these contacts and RTC) and the lack of collaboration that
agents employed a variety of strategies such finance agents mentioned suggest some insti-
as (1) membership of specialist networks, tutional inflexibility in supporting regional
(2) attending non-local investment events entrepreneurship. An alternative perspective
and, (3) organising special events within the is that finance agents in the North East could
region where non-local investors were be viewed as embedded in a set of ‘trained
invited. From the perspective of local finance incapacities’ (Schoenberger 1997) and are
agents, the ‘reward’ for maintaining and unable or unwilling to react to change.
undertaking this behaviour was the numer-
ous organisational proximities and relational The ready supply of public sector equity
complementarities developed with finance in the North East (Figure 30.2), which the
agents beyond the region. Examples of out- UK government requires to be invested
comes included recruiting high-calibre non- solely within the standard region, arguably
executive finance directors for East Midlands mitigates the need for finance agents to col-
entrepreneurs and well-attended local invest- laborate to secure finance. This financial
ment events. Additionally, with the concen- architecture means that North East finance
tration (82 per cent) of contacts located in agents are operating in a limited market and
Cambridge or Oxford, East Midlands finance are possibly in competition with each other
agents were able to stay current with finan- to invest these funds, thus fuelling the
cial narratives produced by investors in cen- observed culture of mistrust. Also the way in
tres of discursive authority. The myriad which the funds were spatially bounded helps
connections served to produce an extremely to explain why North East finance agents
porous finance community, demonstrating attached little importance to engaging
relational advantage, and made it difficult to beyond the North East region. Similarly, the
define where the East Midlands finance relative paucity of funds in the East Midlands
community started and finished. arguably encouraged local finance agents to
collaborate and forge non-local connections
Institutional and financial to secure funds for local entrepreneurs. A
architectures by-product of the financial architecture,
however, was that it added to the relational
The dissimilar institutional terrain, financial advantage of the finance community due to
architectures (Figure 30.2) and industrial his- the plethora of organisational proximities
tories of the two regions are an important and relational complementarities formed with
influence on these different ways of behaving non-local investors.A further by-product was
that local finance agents accessed and relied
on financial knowledge from some of the

365

Table 30.5 Support agencies used by entrepreneurs in the North East and East Midlands

East Midlands North East

EMIN Loughborough BioCity The Hive Connect Entrust Codeworks Connect RTC (Regional Technology
Midlands Centre)
Innovation Centre

Year Formed 2001 2002 2001 2001 2004 1981 2004 1987

Mission A network Purpose- The UK’s largest Purpose-built A not-for- Enterprise To create jobs and A technology transfer
of business designed purpose-built enterprise profit network agency wealth in North company to help clients
incubators – business bioscience and development linking high- supporting East England by exploit new
to increase incubator healthcare centre potential individuals, fostering the opportunities and
the volume, value for new and innovation to facilitate technology start-ups growth of the improve competitiveness
and survival rates growing centre the university businesses with and established regions digital through the application
of new start companies that to create and training and businesses to industries of technology, knowledge
businesses are technology support new finance reach their and forward thinking
or knowledge ventures objectives and
based goals

Source: Wray (2007)

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

most economically dynamic parts of the to become investment ready.Within the East
country. How do differences in institutional Midlands, entrepreneurs were coached by
and financial architectures and in the behav- Connect Midlands whose remit was to ensure
iours of professional finance agents affect that entrepreneurs became investment ready
local entrepreneurs seeking to secure finance? and could pitch for business at investment
By engaging with entrepreneurs it is not events. Among the professional finance
only possible to answer this question but agents and the entrepreneurs, Connect
demonstrates how different socio-institu- Midlands was perceived to be a high-quality
tional configurations affect local and regional and well-respected intermediary. Of the nine
economic development trajectories. entrepreneurs that used Connect Midlands’
investment training, all were positive about
Entrepreneurs seeking finance their experiences and recognised the high-
quality advice they received from the various
The contrasting institutional and financial finance agents recruited by Connect to
configurations of the two regions influenced deliver specialist sessions. The North East
how local entrepreneurs navigated the finan- appeared to lack any official or structured
cial landscape. Entrepreneurs interviewed in investor readiness programme. Although
the East Midlands recognised and benefited Entrust claimed to offer such a programme
from the ‘focus on entrepreneurship´ and in reality it provided limited, ad-hoc training
‘numerous support frameworks’in the region. from in-house employees. Of the eight entre-
Consequently local entrepreneurs perceived preneurs who received training, seven
the East Midlands as a ‘pretty positive place’ expressed their dissatisfaction, claiming it was
in which to set up and do business by virtue poor quality, generic and had little added
of its enabling and supportive environment. value. One entrepreneur, who paid £200,
The myriad ties between the organisations ‘received very little advice and support…
meant East Midlands entrepreneurs were and were given standard guidelines of what is
referred to appropriate contacts/institutions in a business plan which I could get from
and found the financial landscape relatively anywhere’. Another entrepreneur recognised
easy to navigate. By contrast, most North there was a mismatch between his and the
East entrepreneurs found the fractured finan- investors’ financial knowledge so when pre-
cial landscape difficult to navigate, likening it senting his idea at an Investors Forum it ‘felt
to a ‘maze’ and haphazard.A quarter of entre- like an exam without any opportunity to
preneurs called for ‘greater clarity and con- revise for it’.This may reflect the work expe-
solidation’ to make the support networks rience of those training entrepreneurs (in
more focused. Entrepreneurs reported being commercial banking or the public sector)
unaware or unsure of which organisation to unlike those tutors in Connect Midlands,
approach “there is just nothing that you can who had relevant experience in the sector.
latch onto for (financial) assistance” (ibid.) in
the region and generally entrepreneurs felt The high-calibre training offered by
less well supported by the institutionally thin Connect Midlands meant East Midlands
terrain. As one entrepreneur put it, “there entrepreneurs tended to embody and per-
needs to be more people who can pick up a form similar financial knowledge to their
small business and push them through the professional counterparts, while North East
various milestones to get funding … it’s all entrepreneurs remained largely unaware of
very daunting”. investor expectations and, in essence, oper-
ated in a separate money culture from that of
The two sets of regional entrepreneurs also potential investors. Evidence of the impact of
experienced different preparation processes these differences in the preparation process
can be seen in the fact that 55 per cent of

367

F E L I C I T Y W R AY, N E IL L M ARSHAL L AND JANE POL LAR D

East Midlands entrepreneurs understood knowledge held by venture capitalists and
correctly the required sections for a business entrepreneurs which, in some regional con-
plan, compared to only 15 per cent of North texts, make it difficult for agents to intersect
East (see Wray 2007). and do business together. Second, the chapter
has explored two regions not considered to
Finally both sets of local entrepreneurs have ‘successful’ venture capital scenes and
enacted and mirrored the behaviour of the has demonstrated considerable heterogeneity,
local professional finance agents. Like their in both venture finance agents and entrepre-
professional counterparts 65 per cent of East neurs, in the two regions. In addition to
Midlands entrepreneurs attached value and problematising the concept of ‘the problem
importance to engaging beyond the region region’, the chapter has highlighted how the
to increase their chances of securing finance. management of equity at the local level shapes,
Of the 40 per cent of North East entrepre- and is shaped by, local economic, institutional
neurs that engaged beyond the North East, it and financial architectures. Drawing on
was in a considerably more ad-hoc or spo- literatures from communities of practice,
radic way. So, while the behaviour of East cultural political economy and relational
Midland entrepreneurs added to the porosity economic geography, this chapter has illus-
and relational advantage of the local financial trated the importance of agency and varia-
milieu, contributing to the dense ecology of tions in financial knowledges by way of
interaction and knowledge sharing, North complementing more structural and institu-
East entrepreneurs contributed to the rela- tional analyses of the concentration of ven-
tively poor relational advantage of the local ture capital activity.
milieu.
If, as is regularly stressed, promoting
The behaviour of East Midland entre- regional entrepreneurship is a vital ingredi-
preneurs provides evidence to suggest that ent of vibrant and diverse local economies,
they are less dependent on regional interme- then there are a number of lessons that can
diaries to secure finance on their behalf. be drawn from this analysis. First, a supply of
Rather the training and support provided money is not enough. Merely increasing the
equips local entrepreneurs to take control supply of equity in some places does not
of their own agendas in securing finance, necessarily increase the number of deals con-
whereas North East entrepreneurs remained ducted. Although the supply-side initiatives
(unknowingly) reliant on relatively ineffec- are not to be condemned, the existence and
tive training and isolated intermediaries. rules underpinning these funds may have
Different regional financial architectures helped to perpetuate the North East’s rela-
underpin and sustain the dissimilar behav- tive isolation from other investment networks
iour of each set of entrepreneurs. and had a negative impact on local entrepre-
neurs. This research has shown the need for
Conclusion more multi-dimensional and nuanced
regional venture capital policies that embrace
Using the venture capital industry as a lens, different socio-economic and institutional
this chapter has engaged with the dynamics configurations rather than national polices
of money and finance at the local level to rolled out across regions with little regard to
make two key arguments. First, it has argued local differences. Second, the research sug-
that the emergence and production of gests the need for high-quality intermediaries
‘finance gaps’ at the local level is far more and investment training programmes if entre-
complex and culturally nuanced than current preneurs are to be able to embody the right
research suggests. In so doing, it has high- kinds of financial knowledge and to do
lighted the different types and flows of business more easily with venture capitalists.

368

FINANCE AND LOCAL AND REGIONAL ECONOMIC DEVELOPMENT

The positive impacts of the investors training Callon, M. (ed.) (1998) The Laws of the Markets,
course in the East Midlands provides support London:Verso.
for this recommendation.Finally,this research
illustrates the significance of examining the Clark, G.L. (2006) ‘Setting the agenda: the geog-
sociality and spatiality of the venture capital raphy of global finance’, in S. Bagchi-Sen and
industry in order to understand perceived H. Lawton-Smith (eds) Economic Geography:
‘finance gaps’.This analysis escapes the (usu- Past, Present and Future, Routledge: London,
ally) territorially bounded treatment of the 83–93.
industry, while paying greater attention to
agency, and highlighting the connectivity Courlet, C. and Soulage,B. (1995) ‘Industrial
and spatial reach of venture capitalists. The systems and territorial space’, Entrepreneurship
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of work grappling with the tension between
territorial and relational approaches by Crang, P. (1997) ‘Cultural turns and the (re)consti-
empirically demonstrating the complex way tution of economic geography’ in R. Lee and
in which networks, territories and socio- J.Wills (eds) Geographies of Economies, London,
institutional structures intersect to produce New York, Sydney,Auckland:Arnold.
distinct spatial configurations and challenges
for local and regional development outcomes. Crewe, L. (1995) ‘The East Midlands’, Geography,
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raphy of venture capital investments in the versus centralised financial systems: is there a
UK’, Transactions of the Institute of British case for local capital markets?’, Journal of
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regional equity gap? A critique of the
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venture capital funds initiative’, Regional economic geography’, Transactions of the
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treatment of the main tenets of relational
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Geografiska Annaler, 86,1, 5–18.
Zook, M. (2002) ‘Grounded capital: venture
ONS (2006) Regional Trends No. 36, London:The financing and the geography of the Internet
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151–177. (A case study of the significance of
Pike, A. (2006) ‘“Shareholder value” versus the venture capital.)
regions: the closure of the Vaux Brewery in
Sunderland’, Journal of Economic Geography, 6,
201–222.

370

31

Green dreams in a cold light

Susan Christopherson

Introduction believe that when the fate of the global cli-
mate is at stake, the end justifies the means.
For many policy-makers in advanced econo-
mies, “green” economic development is the For the most part, projections regarding
next new thing. It has been touted as a vehi- climate-change-related economic develop-
cle for economic regeneration along the lines ment and the demand for “green” jobs have
of previous technological transformations, come from analyses of industries that have
such as the computer and electricity. It is some association with a green economy
portrayed as a strong economic engine that (Apollo Alliance, 2008, 2009; Bezdek, 2007b;
will create millions of new jobs as well as a Pollin et al., 2008; Pollin and Wicks-Lim,
healthier planet (Gordon and Hays, 2008). 2008; Renner et al., 2008). These estimates
The relationship between economic devel- are very optimistic. Bezdek (2007), for exam-
opment and efforts to reduce greenhouse ple, estimates that 40 million Americans
gases is a contentious one however. Some could be employed in green industry jobs by
advocates of a “green” economy believe that 2030 and Pollin and co-authors (2008)
a climate change-driven technological and project that two million Americans could be
economic transformation must incorporate a employed in green jobs by 2011.The authors
social justice agenda. They argue that our of these optimistic reports generally agree
ability to achieve a healthier global environ- that, in advanced economies, the greatest
ment will be limited if not impossible if potential for creating employment is in
“green” economic development does not building retrofitting and in enhancing energy
improve the quality of life for people who efficiency. In developing economies, the
have not benefited from globalization proc- potential scope for job creation is much
esses, such as trade liberalization. Other advo- broader, both because of out-sourced pro-
cates of a “green economy” take for granted duction for alternative energy equipment
that technological change and government (such as wind turbines) and because basic
incentives will produce economic growth energy needs have not been met for a sub-
and jobs, and are less concerned with how stantial portion of the world’s population.
those jobs are distributed or with where and This unmet need could create, for example,
how economic development will occur.They new industries and jobs in small-scale energy
production, as in photovoltaic equipment.

371

SUSAN CHRISTOPHERSON

Overall, the existing studies estimate how ferent segments of the workforce and differ-
much public and private investment will be ently positioned places – disadvantaged inner
required to create the job growth the authors city neighborhoods, suburban and rural com-
project (Pollin and Wicks-Lim, 2008). munities – in advanced economies. The
However, there has been almost no analysis United States is used as the primary example
of where public and private investments are because of its central role in world energy
likely to occur, of how investment location consumption and adoption of market-based
decisions will affect the spatial distribution strategies to respond to climate change. My
and density of green job creation or of how goal, however, is to foster discussion of a con-
differently positioned communities will be ceptual framework that recognizes how
affected by these investments. green economic development is embedded
in broader political economic institutions
A clear-eyed assessment of where and and reflects the priorities and power relations
how economic development is likely to be that drive those institutions.
structured in the “real” economy requires an
assessment that “follows the money” and also The green economy – what is it?
looks at how political decisions affect the
ability to adopt energy-saving technologies Any attempt to understand the forces shap-
(Kelley, 2008).Three perspectives are critical ing so-called “green” economic development
to this assessment. The first is a recognition necessarily starts from a point of confusion
that green technologies and their applica- because the concept of the green economy
tions will occur within a political economic has been adopted and adapted by interest
framework that has emerged in conjunction groups and corporations with vastly different
with trade liberalization, devolution, and interpretations and agendas.While the green-
deregulation – what we loosely refer to as ing of the economy was once promoted by a
globalization – and the international division small group of environmental activists, it is
of labor constructed by these processes. The now integral to the agendas of multi national
second perspective recognizes the ways in fossil fuel companies, such as BP, as well as of
which economic development policy-mak- advocates for nuclear power, and agribusiness
ing and at the national, sub-national and local interests supporting subsidies for corn pro-
scales will influence public and private invest- duction. What this means is that we have to
ment in the green agenda. Because the struc- sort through myriad depictions of effective
ture and practice of economic development responses to climate change and to under-
differ among national contexts, what is meant stand who will benefit from one actual
by “green economic development” is likely agenda rather than another (Swyngedouw,
to differ, too. Finally, while local initiatives 2006).
and social movements are central to effective
responses to climate change, they will be Despite extreme elasticity in the concept,
affected dramatically by economic policy the green economy is typically defined
initiatives promulgated and adopted at geo- around: (1) renewable energy, including man-
graphic scales above those of the locality. ufacturing of equipment to serve alternative
These include government incentives to energy producers in wind power, solar and
favor some technologies over others and geothermal as well as biomass, and (2) energy
decisions to invest in new forms of energy efficiency and conservation through new
production or efforts to foster conservation technologies, products, building retrofitting,
(Gibbs, 2002). and recycling. The broad and more philo-
sophical than operational goal of these efforts
In this chapter, I lay out a framework for is “sustainability”, most frequently defined as
understanding how the green economy will
take shape and what that will mean for dif-

372

GREEN DREAMS IN A COLD LIGHT

approaches to the economy and environ- in a way that makes it easily integrated with
ment that “meet the needs of the present existing highly centralized and privatized
without compromising the ability of future energy production and distribution systems.
generations to meet their own needs”(United In this scenario, sources of renewable energy,
Nations General Assembly, 1987). such as wind, would be developed at a scale
that allows existing energy distributors to
The ideas and initiatives swirling around access the energy in a form that is consonant
the green economy exhibit all the contradic- with an enormous centralized corporately
tions and conflicts inherent in battles over owned “grid”. To make this version of the
economic globalization.They pit transnational green economy viable, the grid will have to
corporations who thrive on inter-regional be reconstructed to accommodate the varia-
competition and production out-sourcing bility of large-scale renewable energy sources,
against localists who question the social util- such as the ten-square-mile photovoltaic
ity of engagement with notions of global and farms projected for the Western deserts of the
inter-regional competition.The local version U.S. In this “big-big” approach to the green
of sustainable development is very different economy, economic development policy sup-
from that proposed by transnational firms. ports the kinds of major investments that
This is particularly apparent in poor coun- reconstruct the grid and encourage large-
tries where applications are likely to be small scale renewable energy sources such as wind
scale and local because there are few profits and photovoltaic panel “farms” that are pro-
to be made from providing poor people with jected for construction in frontier and rural
energy of any kind (Barbier, 2009). The land.
political debate about the global and local
variants of the green economy has been At the other end of the spectrum are “dis-
increasingly “fuzzed over”, however, as the tributed” energy solutions, such as municipal
green economy has gained iconic status.And, and regional power companies which rely
as with globalization, “There are no internal on heterogeneous, regionally differentiated
social tensions or internal generative conflicts. sources of renewable energy including wind,
Instead the enemy is always externalised and geothermal energy, and hydropower. Dis-
objectified” (Swyngedouw, 2006: 25). tributed energy approaches may be micro,
operating at the level of the individual resi-
When one looks at whose version of green dence or business, or regional, as in the Austin
development dominates U.S.economic devel- Texas Water and Power District Austin Energy,
opment policy, however, it is clearly that of but they are predicated on the idea that energy
those who project a green, sustainable econ- efficiency is more effectively achieved by rely-
omy built around economies of scale – big ing on and tapping sources of energy that are
firms, big unions, and big utilities. For rea- available locally or regionally. In this view of
sons described below, the big players have the the green economy, long- distance transmis-
most potential for shaping critical public sion and large-scale development should only
policies around their interests and capturing be undertaken where regional and local energy
the lion’s share of public investment that will options are not available and energy conserva-
be needed to reconfigure the economy to tion efforts are not sufficient. The grid is a
respond to climate change. back-up system. While a “smart grid” would
have to be constructed to handle the variability
In the broad debate over what is meant by associated with renewable energy, economic
a green sustainable economy and what public development policy would also focus on build-
policy actions should take place to realize it, ing municipal and regional systems that rely on
the question of scale is central. In the arena of local sources of renewable power and are
electric energy production and distribution, accountable to the citizens of a region.
for example, two options are presented. The
first is the development of renewable energy 373

SUSAN CHRISTOPHERSON

A second arena in which the issue of scale The green economy is embedded in
is central to the green economy is that which broader and deeper economic institutions.
constructs a choice between a green economy Policies to promote a green economy take
rooted in large-scale industrial development shape within national governance regimes
of replacements for existing sources of energy that measure economic development in dif-
production and use (such as bio-fuels but ferent ways (more or less including measures
including a range of new technologies, such of social welfare and long-term investment)
as electric cars) and efforts to reduce our and a global governance regime that, though
carbon footprint through energy efficiency partial, has been built around trade liberaliza-
measures. For the most part, energy efficiency tion and intra-national deregulation of key
measures (such as building retrofitting, green industries.When powerful organizations and
roof development or adaptation of photo- individuals step forward to recommend steps
voltaic cells in building) are inherently local in to curb climate change, they do so in such a
their applications. These two directions, one way that their power and influence is main-
focused on energy product replacement and tained.Thus, there is strong pressure for con-
the other focused on energy conservation, tinuity in the governance regime and
efficiency, and reduction are supported by dif- institutional power as policies to transform
ferent economic development coalitions but environmental policy take shape (Sayer, 2008;
all under the banner of sustainability. Swyngedouw, 2006).

In the next section I use the example of Green economic development and the
the United States to further examine the jobs that are associated with it are developing
policies and incentives that underpin “green” in ways that parallel wealth, knowledge and
economic development as it is taking shape technological resources among countries
in advanced economies. In the U.S. case, the (Adger et al., 2006; Barbier, 2009).They also
incentives largely favor market-based, large- mirror the broader patterns associated with
scale solutions and de-emphasize the role of the division of labor in a global economy
local capacity, energy conservation, and dis- that has been restructured by trade liberaliza-
tributed technologies. tion. In 2006, 82 percent of investment in
renewable energy was in the Organization
What kind of green economy? for Economic Cooperation and Development
countries, with Europe and the United States
As has already been suggested, possibly the taking three-quarters of the investment.
most important thing to know about the China had 7 percent, India 4 percent, Latin
green economy is that, despite the hype, it is America and the rest of the developing world
not wholly new. It will emerge out of the each had 3 percent – 3 percent for Latin
business organizations that grow, mine, man- America and 3 percent for all of the rest of
ufacture, and distribute products and services. the countries (Renner et al., 2008). Since 80
It will also be significantly shaped by the percent of the world’s workforce lies outside
strategies of firms that dominate those the advanced economies, most workers are
industries, firms such as Siemens, Mitsubishi, untouched by the green economy.
and General Electric Corporation. This is
important to remember when assessing how Five countries control 72 percent of global
the green economy is likely to take shape. wind capacity, with Germany, Denmark, and
While there are many interesting experi- Spain as most important (International
ments and possibilities, it is critical to look at Energy Agency, 2008). Japan and Germany
the dominant players, their interests and account for 87 percent of grid, connected
agendas. PV solar installations. One out of three of all
solar panels and all wind turbines are made in
374 Germany (ibid.).

GREEN DREAMS IN A COLD LIGHT

At an international scale, the direction and These features are consonant with the U.S.
content of responses to climate change have economy’s orientation toward short-term
been affected by trade liberalization and the gain, high-risk, high-return ventures, empha-
way in which national economies have sis on market creation, financial products
responded to its challenges and opportunities. (rather than on manufacture) and strong
The emergence of national champions in inter-jurisdictional competition. Central to
green energy production, such as Vestas, the U.S. approach is the development of new
Siemens, and Gamesa reflects long-term markets for alternative fuels, which can spur
national investments in the research and devel- investment in land, equipment, and facilities
opment capacity and market development related to wind, solar and hydro power.
that are translating into now expanded market Market creation in the form of tradable
demand in advanced economies. These now quotas or “cap and trade” programs is at the
transnational energy firms wield significant core of the U.S. approach to climate change.
bargaining power when making decisions to This approach has been adopted despite
locate in new markets, such as the U.S. and in European experience indicating that market
out-sourcing to international supply networks creation approaches replicate the lack of
(Christopherson and Clark, 2007). According transparency and complexity that has made
to one report on the energy industries: utility privatization so problematic, while
producing minimal improvements in elimi-
Growth through acquisition is enabling nating pollution (Adam, 2008; Lohmann,
the ‘big’ players to get even bigger while 2006; Milner, 2008). Second, the conception
becoming more vertically integrated of adaptation to a new energy regime empha-
and thus able to raise entry barriers to sizes replacement of high carbon products
keep out new entrants while limiting with low carbon products, such as electric
the growth of small companies. Even as cars, light bulbs, paper products, furniture,
recently as the late 1990s, it was possible and appliances. This is consonant with the
for a company to grow through the perception of the green economy as a market
ability to serve domestic demand, as stimulus. Policies that encourage reuse and
demonstrated by India-based Suzlon. recycling are accepted at the margins because
That window of opportunity, however, they offer some conventional economic
seems to be closing as large global play- growth potential. Policies that might remove
ers further extend their global reach. products from the market or lower demand
for them are actively discouraged as antago-
(Glasmeier et al., 2007: 14) nistic to economic growth.

As the U.S. and U.S. firms attempt to play The third feature of the U.S. green econ-
“catch-up” with Europe in grasping the eco- omy is the assumption that it is built on indi-
nomic opportunities of the new green tech- vidual choices, rather than, for example,
nologies and regulatory environments, the regulatory measures. The taken-for-granted
specificities of the U.S. market governance conception of what should take place is a
regime and economic development policy change in the behavior of individuals to
provide a context within which initiatives replace old light bulbs with new ones and
draw political support and public investment. old autos with new ones.Community choices
to build municipal energy systems or alter
The context for green sustainable incentives across households are depicted as
economy in the U.S. eccentric and “socialistic”. A strong private
property rights regime limits social responses
In the United States, the green economy to environmental damage. Pollution is an
agenda is being built around four key features. externalized cost, and there is little incentive

375

SUSAN CHRISTOPHERSON

for individual firms to reduce it. As a conse- transport industries. Deregulation of truck-
quence, fossil fuel industries and highly pol- ing, for example, greatly expanded the use of
luting industries remain very profitable. truck transport, which is more energy-
dependent than other forms of freight trans-
The fourth characteristic of U.S. govern- port, and subcontracting to owner-drivers.
ance affecting which policy initiatives attract The vertical disintegration of the industry
support and how they are implemented and intensified labor cost competition makes
is the policy-making environment, and it very difficult to incorporate the social and
particularly the extent to which choices environmental costs of truck transport in the
regarding public investment are shaped by total cost of freight transport (Christopherson
inter-jurisdictional competition. The eco- and Belzer, 2009). Deregulation also encour-
nomic development policy environment is aged speculation and market “gaming” in
important to how the green economy will deregulated energy markets, particularly in
take shape because it is through policy deci- electricity markets, raising the rates that con-
sions that public investments will be made in sumers pay and mitigating against long-term
firms, industries, and energy-saving initia- investments that would provide for a stable
tives. In the U.S., economic development market that could incorporate renewable
policy has been built historically around energy at a reasonable cost (McCullough,
inter-jurisdictional competition and carried 2009). It has, through privatization initiatives,
out through firm-specific subsidies as encouraged market concentration and inter-
opposed to approaches that emphasize build- nationalization of ownership of energy dis-
ing industries (through workforce develop- tribution companies.
ment, for example). Economic development
investments have declined at the local scale Within the policy sphere itself, the key
and become more significant at the state level decisions about where investments are to
as the scale of financing required to attract occur and what initiatives will be funded will
transnational firms has increased. These be made at the sub-national state scale rather
public investments focus almost exclusively than by local officials. While some funds for
on large, visible, international players for both local initiatives and energy-efficiency initia-
political and economic reasons. As one eco- tives will come from the federal government,
nomic development official aptly noted: the implementation programs will be
“There is as much work in negotiating with designed and priorities set by sub-national
a firm employing 20 people as one employ- states. Although there are some exceptions,
ing 400 people so we only work with the sub-national states generally favor large-scale
larger firms” (Personal interview, February expenditures, such as subsidies to transna-
15, 2009). tional advanced manufacturing firms. They
have little experience with or inclination to
Although it reflects these enduring fea- develop the labor-intensive programs and
tures of the U.S. market regime, the direction projects that increase energy efficiency in the
and content of U.S. green economy agenda local built environment.
has also been profoundly affected by trade
policy and deregulation since the 1980s. Arrayed against the political and economic
Trade liberalization and deregulation encour- dynamics that favor large-scale investments
aged the “financialization” of the U.S. econ- and inter-jurisdictional competition are local,
omy and hampered investment in the kinds state, and regional sustainability organizations
of long-term research projects that produced in the U.S., which have historical connec-
global leaders in new green technologies in tions to consumer protection movements.
Germany and the Netherlands. These efforts, organized by thousands of not-
for-profit organizations, have complex and
Deregulation also exacerbated propensi- fragmented agendas, including everything
ties to externalize environmental costs in key

376

GREEN DREAMS IN A COLD LIGHT

from protecting endangered species to is widely recognized and there are numerous
addressing the regulatory barriers impeding efforts by non-profit organizations which lay
the local installation of wind and solar power. out guidelines about how retrofitting might
Non-profit environmental and sustainability occur (Center onWisconsin Strategies,2008).
organizations have organized historically The actual programs are, however, highly
around single issues (consistent with con- dependent on federal funding, which is
sumer style political action in the U.S.) and inherently short term. For example, the U.S.
their ability to address the broader structural federal government has allocated $3.2 billion
and more abstract questions raised by green to the 50 states through the U.S. Department
economic development policy is still open to of Energy in the form of flexible block grants
question. Because of these political and eco- to be used in a wide variety of projects,
nomic dynamics, both long term and short including transportation and new green
term, the U.S. green economy is likely to building construction as well as building ret-
assume a particular form, one which will rofits. In addition, The American Recovery
affect both the number of jobs that will be and Reinvestment Act of 2009 (ARRA) has
created and where they will be located. made available $45 million in funding in the
form of a set-aside for green infrastructure,
The emerging shape of the and water and energy efficiency projects.
U.S. green economy How this money is expended will determine
how many jobs are created and for whom.
Although it is difficult to make definitive pre- Because of the range of possible projects
dictions about how policy decisions will included in the federal allocation, including
affect the direction and content of the green transportation, relatively little will likely be
economy in the U.S., there are some broad spent on building retrofitting in cities. Much
indicators of how and where investments in more likely to benefit are projects employing
green economic activities will occur. While large construction companies in efforts to
lobbyists and sector-based green activists use build new “green” schools and municipal
methods such as input/output analysis to buildings. States are vying with each other to
project a potential number of jobs by industry produce model signature projects (in the
(construction, electronic product manufac- guise of demonstrating “best practice”) that
turing, etc.) the actual location of job- can attract media attention and avoid politi-
generating economic activity will depend on: cal opposition. Regulatory change and small-
scale programs, which can be easily
i) the scale of public and private invest- generalized across towns and cities, are likely
ment to energy efficiency or renewa- to receive less attention because, although
ble energy (energy efficiency being they would create more jobs, they are less
ubiquitous and local, and renewable visible to the media.
energy in specific locations);
At the state level, there is very little invest-
ii) what form investment takes (tax ment on the energy-efficiency side of green
incentives or grants versus direct economic development. Instead, state legisla-
expenditures); tors and public officials are investing mas-
sively to compete for firms manufacturing
iii) at what scale it is generated (local, equipment for renewable energy facilities.
state, or national), and These jobs are in transnational firms in highly
concentrated industries. In wind energy, the
iv) whether it is long term or short term. top ten manufacturers supply over 95 per-
cent of global capacity. The solar industry is
The greater job-generating potential of moving toward highly integrated distributors
energy-efficiency programs at the local level
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